Bloomberg News

Banks, VIX Merit ‘Positive Attitude’ on Stocks: Chart of the Day

February 02, 2012

(GRAPHIC: COD_STOCKS_OUTLOOK_020212. CHART OF THE DAY. Size: 3C X 3.75in. (146.0 mm X 95.25 mm) Expected by 15:00.)

Feb. 2 (Bloomberg) -- “A positive attitude toward equity investing is now in order” because U.S. bank stocks are doing relatively well and volatility is fading, according to Donald Coxe, a strategy adviser to Bank of Montreal.

The CHART OF THE DAY combines three indicators that Coxe used to draw this conclusion in his latest monthly report. The top panel tracks the ratios of two KBW Inc. bank indexes -- one for the largest U.S. lenders and the other for regional banks -- to the Standard & Poor’s 500 Index. The bottom panel depicts the Chicago Board Options Exchange Volatility Index, or the VIX.

Coxe recommended that U.S. pension funds lift holdings of domestic stocks by 6 percentage points, to 20 percent of assets. The Chicago-based strategist also called for a 2-point increase in dividend-paying shares, to 12 percent.

KBW’s regional-bank gauge jumped 37 percent from Sept. 21, when its ratio reached last year’s low, through Wednesday. The S&P 500 rose 13 percent during the same period. Similarly, the KBW Bank Index gained more than twice as much as the S&P 500 during the past two months.

“It is good for the stock market that they are thriving,” Coxe wrote in his report, dated Jan. 27. He added that the VIX, a gauge of investor fear, signals the market “isn’t skating on a pond whose ice is about to crack.”

The VIX has closed below 20 for the past 10 trading days, the longest streak since June. When stocks slumped last August, the index rose as high as 48.

--Editors: Stephen Kleege, Joanna Ossinger

-0- Feb/02/2012 19:14 GMT

To contact the reporter on this story: David Wilson in New York at dwilson@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net


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