Markets: News  

Weak data, Goldman call, Moody's rout financials

NEW YORK (MarketWatch) -- U.S. financial stocks closed sharply lower Thursday, down 2.3% as investors were inundated by tepid economic data that prompted a Goldman Sachs research call suggesting shorting the S&P 500 Index.

Concerns over the implications of bank downgrades also weighed heavily on the sector throughout the day.

Among the big banks, Bank of America Corp. (BAC) slipped 3.9%, while Citigroup Inc. shares (C) closed down 3.6%. Morgan Stanley(MS) lost 1.7%, while J.P. Morgan Chase & Co. (JPM) edged down 2.6%. Goldman Sachs Group Inc. (GS) shares trimmed 2.7%.

Moody's announced after trading Thursday that it is downgrading all five banks' credit rating, among 15 global banks getting the ax. Read more on the downgrades.

"All of the banks affected by today's actions have significant exposure to the volatility and risk of outsize losses inherent to capital-markets activities," Moody's said in a statement. Moody's Corp. (MCO) shares sank deeper to close down 3.5%.

Meanwhile, Goldman put a 1,285 target on the S&P 500 (SPX) , extending losses in the sector in afternoon trading.

The call to short came just a day after the Federal Reserve said it was cutting its growth and inflation forecasts for the rest of the year, and the same day that the Philadelphia Fed said manufacturing activity in its region for June plunged to -16.6 from -5.8 reading the previous month. Read more on the Philly Fed's business outlook here.

Genworth Financial Inc. (GNW) led all decliners throughout, falling as much as 6% by the end of trading. Insurance firms and real-estate investment trusts registered some of the biggest losses, with Metlife Inc. (MET) and Lincoln National Corp. (LNC) both closing down more than 3.5%. CBRE Group Inc. (CBG) shaved off 4.9%.

"Banks are a proxy on people's outlook for the economy, [and] today was definitely a risk-off day," said Kevin Fitzsimmons, managing director of equity research for Sandler O'Neill.

Shattering investors' confidence even more were reports that Spanish banks will need up to $78 billion in new capital, the first finding in a two-part audit of the country's banking system. Earlier in the day, an HSBC survey that showed Chinese manufacturing continues to weaken -- indicating falling global demand -- also dampened sentiment. Read more on the report.

Also on Thursday, U.S. jobless claims for the previous week fell to a seasonally adjusted 387,000, but still short of expectations (economists surveyed by MarketWatch projected it to fall to 385,000), thus indicating no progress in hiring trends. Meanwhile, sales of existing homes fell 1.5% in May, according to the National Association of Realtors. Read more on jobless claims.

In the broader market, the financial Select Sector SPDR ETF (XLF) , which tracks the financial stocks in the S&P 500, declined by 2.2%. The KBW Bank Index (BKX) , which tracks the 24 leading U.S. banks, shaved off 2.3%.

Analysts are hoping stocks will only improve from here. "Sometimes when you have a steep selloff, it's common that you get a relief rally afterward," said Fitzsimmons. "But again, a lot of that is going to be driven by what other data we get [Friday]."