Our outlook for financial-services stocks

Volatility could return to the financial sector in the second half of 2013.

Jim Sinegal 28 June, 2013 | 2:17AM

Highlights
With a price/fair value estimate ratio of 96% and market volatility on the upswing, caution may be warranted in the financial-services sector.
Investment banks and asset managers are levered to market performance and are good stocks to watch in the event of a pullback.
Banks will need to continue cutting expenses in order to grow earnings.

At 96%, Morningstar's aggregate price/fair value estimate ratio for financial-services stocks shows the sector continues to hover just under fair value. We expect a still-shaky macroeconomic environment around the world to result in volatility through the second half of the year. The European debt crisis remains somewhat unsolved, civil unrest is rising around the world, and central banks in the U.S. and Japan are taking the next steps in their unprecedented economic experiments. Despite this, some financial stocks are setting record highs. In our view, investors would thus be well-served to pick their spots when adding to positions in financial-services firms.

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Jim Sinegal

Jim Sinegal  Jim Sinegal is a senior equity analyst for Morningstar.

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