After driving the stock market higher since March 9th, the banks have suddenly gone out of favor.  Since early May the market has continued to climb, but banks have faltered.  There has been a massive rotation out of banking names and into commodity and tech over the course of the last three weeks as investors crowd into the names that appear to be cordoned off from the nasty balance sheet problems that have plagued the markets over the last 18 months.

Unfortunately for the long-term outlook of the U.S. stock market, the banks remain a critical driver of earnings and stock market growth.  The financial component of the S&P 500 has shrunk to just 11%, however, banks still serve as the lifeblood of American business.  Without the lending component most U.S. corporations struggle to grow and finance their day to day operations.

The banks have run into an interesting point of resistance here at the 200 day moving average.  While investors hail the S&P’s surge above this critical point the banks and housing stocks appear to have hit a road bump.

Can this rally continue without the leadership of the banks and housing stocks?  As the primary causes of this crisis, I believe we will have to see continued strength and recovery in these shares if the rally is to sustain its upside momentum.  This divergence, though short-lived, cannot be sustained or the market could experience a near-term bout of weakness.