US banks trounce S&P 500

Philadephia Bank Index ($BKX) compared to S&P500 ($SPX) January 2012

The chart above shows the performance of the Philadelphia Bank Index ($BKX) compared to the S&P 500 ($SPX) from the start of 2012. The Bank Index has clearly trounced the S&P 500, returning 8.86% YTD compared to the S&P 500′s return of 4.67%.

There is an old expression on Wall Street, “you can’t have strong equity market performance¬†without strength in the financial sector”. And that works both ways. In 2006 before the markets as a whole sharply corrected we saw the Philadelphia Bank Index sharply under performing compared to the S&P 500, losing -16.44% vs -1.45% for the broader market index. Of course that set the market up for 2008, when the S&P 500 lost an eye popping 36.91%.

What’s driving US Banks higher? They are getting back to basics, making their money from lending not riskier proprietary trading and earnings are soaring because of cheap borrowing costs.

Thank you, Dr Bernanke.

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