June 23 (Bloomberg) -- Goldman Sachs Group Inc. reversed its May 5 recommendation for investors to add to U.S. financial and consumer stocks, conceding it was ``clearly wrong'' about the prospects for both groups.

Goldman advised investors to ``underweight'' the categories by allocating less to them than their weightings in the Standard & Poor's 500 Index. In May, the world's biggest securities firm boosted its rating on financial companies to ``neutral,'' or market-weight, and assigned an ``overweight'' recommendation to consumer shares. Goldman's shift contrasts with JPMorgan Chase & Co., which said today that oil's surge to a record has created a buying opportunity for financial shares.

``We boosted our consumer discretionary and financials weights in May on the belief the sectors would benefit from bank recapitalization and fiscal stimulus,'' New York-based Goldman analyst David J. Kostin wrote in a note to clients today. ``Our thesis was clearly wrong in hindsight.''

Bank, brokerage and insurance stocks, the third-largest of 10 industries in the S&P 500, fell 19 percent from May 5 through June 20, more than any other group. Consumer discretionary was the third-worst category, dropping 8.4 percent. The S&P 500 slid 6.4 percent in the period.

Deteriorating Credit

Goldman analysts in a June 17 report said financials would likely continue to languish. Credit deterioration won't peak until next year and raising capital has become more difficult because most of the deals that have been done have performed poorly, the analysts said.

Financial companies worldwide have raised almost $304 billion to offset losses from subprime loans. To restore confidence in the debt markets, the Federal Reserve has reduced its benchmark rate seven times since September.

Consumer shares are vulnerable because of worsening access to credit, ``sharply'' falling home prices and rising unemployment, Kostin wrote.

Goldman reiterated its recommendation to overweight the energy, technology and materials groups to benefit from themes it said will continue to drive U.S. stocks this year -- commodity price inflation, consumer weakness and global growth.

The financial industry may outperform the S&P 500 just as it did during the late 1980s, the U.S. recessions in 1990 and 2001, and 2004, JPMorgan equity strategist Thomas Lee said today.

`Horrific' Performance

``We still want to be long financials, despite their horrific recent performance,'' he said. ``This reflects the fact that financials absorb earlier the negative impact from rising oil, thus explaining their subsequent relative outperformance.''

Crude has advanced 97 percent in New York during the past year. The S&P 500 Financials Index lost 21 percent last year, the biggest drop since 1990 and the most among 10 industries. The group has tumbled 26 percent so far in 2008.

The surging price of oil is the greatest risk to JPMorgan's estimate that the S&P 500 will gain 10 percent through the end of the year, New York-based Lee wrote in a report today. He projects that the benchmark index for U.S. stocks will finish 2008 at 1,450. The measure stood at 1,317.93 on June 20 after falling 10 percent this year.

To contact the reporters on this story: Elizabeth Stanton in New York at estanton@bloomberg.net; Sarah Thompson in New York at sthompson17@bloomberg.net.

Last Updated: June 23, 2008 13:26 EDT