Commodity strength counters slumping banks

Small-cap stocks pushed higher Friday, fighting back from a midday slide into the red as commodity stocks, homebuilders and airline stocks offset another rough day for banks. The Russell 2000 (NYSE:IWM) closed up 3.82, or 0.83%, at 466.45, but still lost 3.1% for the week. For the year, small caps are off 6.6%, while the Dow is down 5.6% and the S&P 500 is down 5.9%.

Banks have been the dominant focal point for investors this week, and it has been a brutal period for some of the world’s most prominent financial firms. Citigroup Inc. (NYSE:C) tumbled 48% for the week and Bank of America Corp. (NYSE:BAC) shed 45% while posting its first quarterly loss in 17 years and the lowest daily close in more than a decade. Even news overnight that the government was extending another $20 billion of direct injection into BAC and guaranteeing $118 billion of assets couldn’t stem the selling tide today; BAC lost another 13.7%.

We’re only a little more than halfway through the month of January, but according to the S&P sector groups the biggest three losers are diversified financial services firms (down 38%); diversified banks (down 35%) and regional banks (down 27%). There is a segment of the investment community that doesn’t believe the market will go higher without leadership from the financial sector – if they are right, then the New Year is off to a troubling start indeed.

Even though it has been a dour start for banks this year, it’s interesting to note that call activity for Citigroup is starting to pick up steam, suggesting that investors are trying to take a shot at bargain hunting for the embattled firm. This afternoon, Bill Gross, leader of the world’s largest bond fund at PIMCO, said that the . . .

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