Downgrade of Goldman stock weighs on bank shares
NEW YORK — A downgrade of Goldman Sachs Group Inc. by influential bank analyst Meredith Whitney rattled financial stocks Tuesday, a day before major banks start reporting their earnings.
Goldman Sachs fell $3.78, or 2 percent, to $186.37 in afternoon trading after Whitney downgraded the investment bank’s shares to “Neutral” from “Buy.” The bank’s shares had risen 34 percent since Whitney upgraded the stock to “Buy” with a $186 target price in mid-July.
The report unnerved investors and triggered selling of financial stocks ahead of quarterly reports from some of the largest U.S. banks this week. JPMorgan Chase & Co. will issue its report on Wednesday, followed by Goldman Sachs and Citigroup Inc. on Thursday, and Bank of America Corp. on Friday.
Better-than-expected first-quarter results from banks set off the stock market’s rally seven months ago, and even better second-quarter results helped re-ignite the rally in July.
Now, on the eve of banks’ third-quarter results, investors are once again transfixed on the reports, hoping for more evidence that the economy is healing. Investors want to see signs that loan losses are stabilizing and that banks have been able to build up solid core businesses.
Many analysts say the results will largely determine whether the stock market can keep its seven-month rally going.
The benchmark Standard & Poor’s 500 index is up 59.1 percent since hitting a 12-year low in early March. The KBW Bank Index, which tracks 24 of the largest U.S. banks, has risen a massive 144.3 percent since then.
“You can certainly make the case that it’s time to take some profits off the table,” said Jason O’Donnell, senior research analyst at Boenning & Scattergood.
With banks having run up so much over the past several months, investors are looking for the earnings reports to validate the current valuations.
“If earnings come in better than expected and guidance is good, then valuations will justify it,” said Neil Massa, senior trader at MFC Global Investment Management. “Valuations are pretty stretched. You need to make sure earnings match that.”
Bank of America shares fell 27 cents to $17.76, while JPMorgan lost 85 cents to $45.23. Morgan Stanley fell 57 cents to $31.19. Wells Fargo & Co. shed 43 cents to $29.85.
Bucking the trend, Citigroup shares added 8 cents to $4.85.
Elsewhere among financial stocks, CIT Group Inc. plunged more than 12 percent, falling 13 cents to 91 cents after the troubled lender said its chairman and CEO Jeffrey M. Peek plans to resign at the end of the year. CIT, a major lender to small and medium-sized businesses, has been trying to avoid bankruptcy for months.
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