Financial Stocks Continue To Struggle

This morning the large major financial institutions continue to struggle. Recently all the financial stocks have traded down towards or at new lows for the year and today the weakness remains. Stocks such as Bank of America Corp BAC, J.P. Morgan Chase & Co JPM, and Wells Fargo & Co WFC remain at or near the lows for 2010. Financial stocks such as Goldman Sachs Group Inc GS, and Morgan Stanley MS are both still trading above their July lows. However, while these two stocks are categorized as bank holding companies they are still basically giant hedge funds. The financial stocks are still the most important sector in the market. Remember this is the sector that was saved by the Toxic Asset Relief Program(TARP) by the U.S. Treasury in 2008. These stocks have had huge amounts of liquidity pumped into them since that time. They can still borrow money from the Federal Reserve Bank at basically zero percent today and buy U.S. Treasuries to make money. These financial institutions can maintain their credit card business and make money. Essentially, they no longer need to lend money to make money. Therefore, if these stocks continue to decline it could be signaling bigger problems are ahead. When the financial stocks fail to rally for more than a day or so it is a sign of market weakness. Many economists are now beginning to call for more stimulus by the government. If the first stimulus plan only worked for a year how long would another stimulus package work? Recently the European Union bailed out it's banks with a $1 trillion injection into the financial stocks. So far the European Union remains off it's recent lows, however, it still remains weak. This week we may just drift sideways. However, once volume comes back into the market after the Labor Day holiday these financial stock must be watched with a microscope. Nicholas Santiago Chief Market Strategist www.InTheMoneyStocks.com