Are unhealthy European banks dragging the market down? Not according to behavioral evidence. European financial stocks have generated relative strength versus broad Europe since mid July, indicating that banking woes are not the root cause of the recent correction. See chart.
Despite obvious problems with Monte Paschi, Deutsche Bank and others, the European financial sector appears stable, and might easily surprise to the upside. Sectors generating relative strength during market corrections often lead the next market advance. Whatever Mario Draghi is doing appears to be working.
