Financials Lag as Markets Prep for Euro Fallout

Today the financial sector (NYSE:XLF) had a rough go of things, with the S&P 500 financials index ending down 1.8%. Moody’s (NYSE:MCO) was among the stocks hit hardest, closing down -3.48%, with Citigroup (NYSE:C) also taking a lighter whopping, down -1.81% at the bell. The sector continues to stagnate as concerns flare in Europe over banks’ exposure to a debt situation that is worsening daily. Stoking fears today was Moody’s decision to cut Ireland’s bonds to junk, following its earlier junk slash at Portuguese sovereign debt. Italy worries are also still in the limelight as PM Silvio Berlusconi is looking to push an austerity bill through that would raise taxes and cut government spending.

U.S. financial stocks were a mixed litter today, with bank stocks mostly down across the board, including hits to BofA (NYSE:BAC) down -1.35%, Morgan Stanley (NYSE:MS) down -1.67%, and Goldman-Sachs (NYSE:GS) -1.30% among the biggest losers. Credit card companies were generally down with the exception of American Express (NYSE:AXP) up .25%. Investors continue to brace for a loss in bank stock holdings as rumors swirl that this year’s second quarter earnings will be among the ugliest in recent memory. Expected to contribute to lower margins this quarter are dwindling trading volumes, new caps on debit card fees, increased capital reserve requirements, and a litany of ongoing legal battles brought against banks by federal prosecutors.

Senior research analysts at D.A. Davidson & Co. write, “Headed into earnings season, the overriding sentiment is that revenue will remain under pressure due to a lack of loan growth, asset quality should continue its healing process, and investors will continue to await the hand-off from credit leverage to balance-sheet leverage at most institutions.”