When the economy strengthens as it did from 2009 to 2011 investors know that the companies making the most money are those taking advantage of faster economic growth and these companies are those in the commodity-sensitive sector, not the financial stocks. This preference is reflected by declining strength of the financial stocks when the economy improves more rapidly. The other reason the financial sector is weak when the economy grows faster following a period of slow growth or recession is because loan demand is weak during such times
When the economy starts slowing down, as it happened in the beginning of 2011, the commodity-sensitive stock sector performs more poorly (their relative strength declines) and money flows into sectors with superior opportunities. The financial sector is one of these sectors (see Fig. 4.4) as loan demand grows more rapidly because of the growing economy. The outcome is the relative strength of XLF rises when the economy slows down. This pattern is exactly the opposite of the pattern displayed by the materials and energy sectors.
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