Bank sector hits new relative lows

Although the KBW Bank Index is less than 7% away from its late-February all-time highs, the benchmark measure has failed to keep pace with the broader market for quite some time.

Since August, bank shares have underperformed the S&P 500 Index by 10.5%, and the sector is more than 13% below its July 2003 peak on a comparative basis. As of this morning, in fact, the relative measure hit its lowest level since the bull market began in 2002.

Often, relative performance analysis offers clues about how large investors, in particular, view an industry's future prospects. In this case, the continuing deterioration may reflect growing apprehensions about credit quality, especially in light of the meltdown in the subprime finance sector, as well as the sense that the industry's best days may be behind it.

Given that many investors are overweight the financial sector and have traditionally viewed bank shares as a safe haven in times of uncertainty, now may be the time for a rethink.

Michael Panzner is a 25-year veteran of the global stock, bond, and currency markets and the author of Financial Armageddon: Protecting Your Future from Four Impending Catastrophes and The New Laws of the Stock Market Jungle: An Insider's Guide to Successful Investing in a Changing World.