Financials: Why Investor Should Buy On JPMorgan's News

NEW YORK (TheStreet) -- The $2 billion dollar derivatives loss announced Thursday by JPMorgan Chase (JPM) sent Wall Street into a frenzy -- one reminiscent of the crash of the housing bubble.

The company's announcement, coupled with the ongoing fiscal concerns of Europe, demonstrates how banks are caught in the cliche of "one step forward, two steps back." Remarkably, this disappointment arrives just when it appears the sector was rebounding -- that, although investors had become less trusting of financial stocks, the market was prepared to offer a slight pardon for past indiscretions. The question becomes, with the sector likely to take a hit from this news, how should investors play it?

A $2 billion dollar derivatives loss announced Thursday by JPMorgan Chase sent Wall Street into a frenzy -- one reminiscent of the crash of the housing bubble.

Looking at the chart above, it tells just how well the financial sector has performed since the start of 2012. The sector is leading all of the groups, with a net gain of 15% topping both technology and consumer discretionary stocks and both coming in tied for second at 13.5%. As great as the sector has performed year-to-date, though, its current 15% performance is down significantly from the end of Q1, when it reached a high of 21.5%. This tells me two things: Either the market has already locked in some gains from the sector's high, or investors have turned slightly bearish. In either scenario, investors should take this as a buying opportunity.

The chart above tells just how detached investors have become with financials since the start of the month and the sector's freefall. Leading the way downward has been Bank Of America (BAC) and Goldman Sachs (GS) with losses mounting as much as 7%, while Wells Fargo (WFC) -- long considered the most stable of all of the financials -- held course with a decline of just 2.64%. JP Morgan will likely see the bulk of more declines with its recent announcement pushing it further below its 200-day average.

1 2 Next › Last »