Stocks Sharply Lower From Weakness Within Financial Sector - U.S. Commentary

(RTTNews) - Amid concerns over the health of the financial sector, investors are selling stocks in morning trading on Friday. With little in the way of economic news, sentiment has been focused on some negative corporate news.

The financial sector is dragging the markets lower amid lingering concerns about the consequences of the credit crunch. Analysts at Merrill Lynch reportedly slashed their earnings outlooks on several large regional banks, stating that they will have to cut dividends and continue to boost loss reserves.

Merrill Lynch (MER) has been the target of rumors that it may issue its own profit warnings, although those rumors have not been substantiated. Investors have been skittish after Citigroup (C) warned of significant write downs in its second quarter.

Additionally, Moody’s Investor Services cut its ratings on Ambac Financial Group (ABK) and MBIA (MBI), citing their impaired ability to raise capital and write new business. The drop of their ratings came as no surprise, as Moody’s said earlier in the month that it would likely cut their ratings.

Adding to the negative sentiment, oil prices are rising sharply higher after seeing a significant decline in the previous session. On Sunday, a meeting in Saudi Arabia between oil producing and consumer nations may bring some solutions to the surging oil prices, although many analysts doubt there will be any resolution.

In recent trading, the major averages have moved off of their earlier lows, although the Dow remains below the psychologically significant 12,000 mark. The Dow is currently down 155.59 at 11,907.50, the Nasdaq is down 41.19 at 2,420.87 and the S&P 500 is down 16.33 at 1,326.50.

Sector News

Airline stocks are turning in some of the worst performances as the price of oil climbs more than $3 a barrel. The Amex Airline Index is currently falling 7.9 percent, reversing most of the gain posted in the previous session. On Thursday, the index set a two-week closing high.

Bank stocks are also seeing significant selling pressure on reports that Merrill Lynch cut its earnings estimates on several banks. The S&P Bank Index is down 2.6 percent, setting another eleven-year intraday low. The index has been trending lower for the past month.

Within the bank sector, National City (NCC) and SunTrust Bank (STI) are two of the biggest losers. National City is currently trading 3.1 percent lower, while SunTrust is seeing a decline of 5 percent.

Semiconductor stocks are seeing substantial weakness as well, with the Philadelphia Semiconductor Index falling 2.9 percent. The index is reversing a gain posted in the previous session, but it remains in a trading range.

Hurt by an analyst downgrade of one of its components, the disk drive sector is also sharply lower. The Amex Disk Drive Index is down 2.5 percent after setting a monthly intraday low.

Other stocks that are seeing notable weakness include brokerage, retail and telecommunications stocks. The Amex Securities Broker/Dealer Index is down 2.7 percent, the S&P Retail Index is down 2.7 percent and the Amex Telecommunications Index is down 2.7 percent.

On the other hand, resource stocks are seeing notable gains, helped by higher commodity prices. Within the resource sector, oil service and natural gas stocks are turning in some of the best performances. The Philadelphia Oil Service Index is climbing 0.9 percent, while the Amex Natural Gas Index is moving 0.7 percent higher.

Stocks Driven By Analysts Comments

Among individual stocks, SanDisk (SNDK) is seeing significant selling pressure after a Citi Investment Research analyst downgraded the stock to a Hold rating and cut his target price to $27 from $35. The analyst stated that industry-wide trends will likely harm the company’s performance.

Shares of the memory chip maker are currently trading down 8.2 percent, reversing the gain posted in the previous session. The stock has been in a downtrend for the past month, and the stock has set a two-month intraday low with today’s decline.

Biovail Corporation (BVF) is also showing a substantial decline. A CIBC World Markets analyst downgraded the stock to a Sector Underperform rating from a Sector Perform rating. The stock is falling 6.6 percent on the downgrade, reversing a strong gain posted in the previous session.

On the other hand, Apollo Group (APOL) is showing considerable strength after a Credit Suisse analyst upgraded the stock to an Outperform rating, stating that the company will likely raise prices aggressively due to federal loan limit increases. The stock is up 2.3 percent.

Other Markets

In overseas trading, the major Asian markets were mostly lower for the second straight day on Friday, although the Malaysian, Singaporean and Chinese markets bucked the downtrend. Japan’s Nikkei 225 index showed a notable downward move, closing down 1.3 percent.

European stocks are also under pressure, adding to the losses that were seen in the previous session. The French CAC 40 index and the German DAX index are currently down 2.1 percent and 2.3 percent, respectively, while the U.K.’s FTSE 100 index is posting a 1.5 percent loss.

Meanwhile, treasuries are showing significant strength as investors move out of stocks and into the safety of government backed bonds. Subsequently, the yield on the benchmark ten-year note is currently down 7.8 basis points at 4.121 percent.

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