Insurance Breakdown

It is no exaggeration to say that the financial services sector is in a bear market; many funds specializing in this area are off -30% or more from peaks in the first half of 2007. Yet the declines have not been uniform within the sector. Banks and mortgage lenders took the brunt of the losses while brokers and insurance companies fared a little better. Today may mark the beginning of a new phase as insurance giant American International Group (AIG) stock plunged almost -12%. The reasons should be familiar by now: write downs on derivatives related to the firm's fixed-income assets. Since it is highly unlikely AIG is the only insurance carrier to own such instruments, similar news from its peers will not be surprising over the next few weeks.

The loss in AIG today was offset by gains in energy stocks as crude oil jumped to a one-month high. Technology shares rallied as well. Looking past the short-term action, the bigger picture is not much changed. Yes, certain sectors are up nicely from last month's lows. Yet almost every equity sector is in an intermediate-term downtrend; some are trending down more slowly than others, but the direction is nonetheless down. The prime exceptions are gold and transportation - not much of a base upon which to build a new bull market. While the bottom is surely out there somewhere, it may take further losses to find it.