There is continued concern that the credit defaults for subprime borrowers will spread to higher quality borrowers who are getting squeezed by the increased costs for debt obligations plus basic needs such as food and gasoline.
This concern is weighing on higher quality financial firms along with the lower quality names.
As a result of this concern, stocks such as Bank of America (BAC) now yield over 6%.
If one already owns financials, I would not be selling these stocks at these low levels, but holding on for the long-term.
End of year tax loss selling is only exacerbating the reduction in share prices for these higher quality names.
The stock market will not be able to recover without a recovery in the financial stocks.
As a result, any recovery in the overall stock market is unlikely until mid-year 2008.
For those with patience and the ability to withstand volatility, the large financial, industrial, and retail companies provide good entry points at this price level.
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