The Flight to Quality Begins

I’ve been saying for awhile now that financial stocks are going to fall out of favor and fundamentals are going to lead the market again. A recent report indicates that this is starting to happen:

A report released by investment research company, TrimTabs, indicates insider sales are outstripping insider purchases. Specifically, TrimTabs said insiders of S&P 500 listed companies unloaded $2.6 billion in shares in June compared with just $120 million in stock purchases. While this is a huge margin, much of the selling pressure is coming from investors who are selling off stocks with bad fundamentals in the financial sector.

While some selling pressure caused bumps in the market over the past few weeks, the fact remains that investors had to tap on the brakes and let financial stocks flame out. In the long-run, this will create a solid base that the market can bounce higher off of.

We are witnessing a big change in market leadership. I’ve saying you that this would happen, especially since the biggest gainers since the March 9th retest have been financial stocks. This is good news because now that the froth is settling, the companies with the strongest fundamentals can emerge as the new market leaders. Many high-quality stocks rallied double-digits last week while the S&P 500 struggled to break even. This just goes to show that fundamentally superior stocks are capable of putting up big gains on days when the broad market falters.

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