Financials back to Earth
American Express 'just meets' amid bond woes
By Emily Church, CBS MarketWatch
Last Update: 5:46 PM ET Oct 25, 1999 Also: NewsWatch
NEW YORK (CBS.MW) -- Financial stocks came back to Earth Monday as investors became more discriminating about which stocks will benefit most from financial-services reform in Washington.
Bank, brokerage and insurance-company stocks powered higher on Friday after lawmakers struck a compromise on a bill that tears down Depression-era rules that kept them out of each other's businesses. See full story.
By Monday, with bond yields rising and weakness in the dollar, the bank stocks ($BIX: news, msgs) lost that exceptional head of steam and were off 1.5 percent. Brokerage stocks ($XBD: news, msgs) -- the biggest sector gainers on Friday -- were off 2.1 percent.
American Express' (AXP: news, msgs) just meeting the consensus estimate from First Call of a $1.42 net profit per share also sent a sell signal, said Bill Meehan, chief strategist at Cantor Fitzgerald.
"There had been a huge run-up," he said. "With that kind of momentum, meeting the numbers isn't good enough." American Express' stock was recently down 5 1/4 to 143 3/8.
The financial-sector gains on Friday were surprising, considering "the bond market is in the clutches of a nasty bear market," said Meehan. "It's just unraveling."
'There had been a huge run-up. With that kind of momentum, meeting the numbers isn't good enough.'
Downgrades of three key financial stocks from Merrill Lynch added another negative to the mix. "Reflecting the recent price run-up," analyst Judah Kraushaar cut Morgan Stanley Dean Witter (MWD: news, msgs) and Northern Trust (NTRS: news, msgs) to short-term "neutral" from "accumulate" and lowered the short-term rating on Lehman Bros. (LEH: news, msgs) to "accumulate" from "buy."
"In the wake of last week's strong rally in financial shares, we believe the group's risk/return appeal has weakened -- a great deal is now riding on a soft landing for the economy," Kraushaar said in a note to clients.
"We believe that the potential positives from financial reform legislation are being overhyped by investors," he said. "In the long haul, the legislation may spur a wider array of mergers, but, in practice, we believe that the new law will open up a very limited range of new combinations in the near term."
Some of Friday's biggest winners took it on the chin Monday. Lincoln National, an insurer that is seen as a potential acquisition target, was off 2 7/16, or 5.2 percent, to 44 3/4
Merrill (MER: news, msgs) was down 1 3/4 to 70 3/8, as J.P.Morgan (JPM: news, msgs) slipped 5 7/16 to 120 3/16.
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