"I read an article today with the attached graphic which was saying that the divergence between the banks and the general index in the USA is looking unsustainable. It also talked of unrealised problems in CRE but did not mention the unrealised problems with mortgages which John Mauldin has been writing about. In the light of the banks unrealised problems do you think that their stock prices have further to fall and, if so, does this make you less confident about the main markets in the USA?"

David Fuller's view Thanks for an important question of likely general interest and a graphic which I cannot reproduce although I can replicate it. This chart shows the S&P 500 Index with a 200-day MA, overlaid with a green line chart of the S&P 500 Banks Index.

This Banks Index has been drifting lower since April and further weakness would be an additional headwind for the S&P 500 Index which is testing its April high. A break in the progression of lower rally highs for the Banks Index since April is required to improve the pattern.

I do not know what US banks are going to do but apparently some funds are shorting them, judging from all the bearish commentary. That is a more dangerous game at these levels, compared to the breakdown in 2007, and I would not be surprised to see an eventual political resolution to the legal problems over mortgages (see also Eoin's comments below).

At no point in the last year would I have described myself as "confident about the main markets in the USA." In the global beauty contest, the US remains ugly overall. However there are individual exceptions. The US stocks I do continue to like are cash-rich, multinational companies leveraged to the Asian-led global economy. Eoin has featured many of these in recent months.