The last continue to be first, as some of 2011’s most
hated stocks, the financials in particular, led the market to another week of
gains. Equities rose almost 1% last week in decent trading volumes.

Investment banks and brokerage firms—down some 44% last
year—were again among the leading groups and are up about 10% so far in 2012.
Stocks fell Friday, but still managed to finish above the day’s lows.

The year is young, but it might not be a coincidence
that financials turned on a dime Jan. 2. There appear to be some preliminary
moves by institutional investors to raise their exposure to beaten-up
financials.

The Dow Jones Industrial Average, rose 62, or 0.5% on
the week, to close at 12,422.06. Dow component Bank of America (ticker: BAC) is
the leader of the pack, up 19% in 2012. The Standard & Poor’s 500 index
rose 0.88% to 1289.09, and the Nasdaq Composite gained 1.4% to 2710.67.

While the travails of the European debt crisis hurt
Friday—France was downgraded by Standard & Poor’s—the profit-taking was
minimal, points out Marc Pado, U.S. market strategist for Cantor Fitzgerald.
Last year’s dogs, the economically sensitive groups like financials, autos and
materials, are leading in 2012.

“You would have expected that in the first week,”
he adds, but Pado asserts this week’s second rise means it’s more than a
bounce. Institutions are taking a new look at financials and are reducing the
underweight of those stocks in their portfolios, he says.

Those same investors, adds Tim Ghriskey, chief
investment officer at Solaris Asset Management, are trying to decipher which
banks will be allowed by the Federal Reserve to raise dividends and buy back
stock after April’s stress test.

Another possible rally support could come from pension
funds, which are having to reallocate assets, adds Ghriskey, because yields are
so low.

NEWSPAPERS ARE FILLED WITH HORROR stories about the
pension-fund woes of the public sector. There are cities and states around the
country that might have to fire policemen and firemen to cut expenses and meet
their onerous pension obligations.

Corporate America’s growing pension problem, however,
appears to be off investor radar screens right now. That perhaps won’t last
much longer, as the close of 2011’s company books means their pension-fund data
will be updated relatively soon. During the first-quarter earnings season,
there could be some nasty surprises in store for investors as some companies
reveal a need for unexpectedly large contributions later this year to their underfunded
pension plans, if plan performance has worsened.

In a recent report, Credit Suisse analyst David Zion
took a look at the pension-funding disclosures of the companies in the S&P
500 index and estimates that as of year-end 2011 these plans in aggregate are
underfunded to the tune of roughly $458 billion. That’s equivalent to 3% of
U.S. gross domestic product. The pension pothole continues to get bigger, as
plan funding levels have fallen to a new low of 74%, he figures, compared with
S&P 500 companies having their pension plans 84% funded and a $246 billion
hole about one year ago(Source:  Barrons Online).