In the financial sector, it’s a ‘targeted panic’ this time
This article was originally on a blog post platform and may be missing photos, graphics or links. See About archive blog posts.
In this latest episode of panic selling in the financial sector, Wall Street is targeting a relative handful of the usual suspects -- including Lehman Bros. Holdings Inc., Washington Mutual Inc. and insurance giant American International Group.
Unlike in mid-July, the damage to financial stocks overall hasn’t been severe.
Market bulls see that as a positive sign. The bears say investors are delusional.
Lehman’s shares, which plunged 42% today to $4.22, have dived 74% since Friday. WaMu has lost 34% since Friday and fell as low as $1.75 today but got a late bounce and finished up 51 cents at $2.83. AIG is off 21% in four days, although it edged up 5 cents to $17.55 today after falling as low as $13.82.
By contrast, the Standard & Poor’s index of 87 financial stocks in the S&P 500 index has declined just 1.5% since Friday -- despite the wipeout of shares of Fannie Mae and Freddie Mac since the government seized the companies Sunday. The index rallied 1.5% today to close at 285.67.
What’s more, the financial-stock index is 23% above its 10-year low reached July 15, when the last major selling wave hit banks, brokerages and insurers.
Jim Swanson, chief investment strategist at MFS Investment Management in Boston, says this time the market is differentiating between financial companies that clearly face serious capital threats and those that appear much more likely to survive the credit crunch.
Unlike during the July storm, ‘the investing community worldwide doesn’t feel like the dike has broken this time,’ Swanson said.
Interestingly, the S&P financial-stock index has held up much better than the broader market. Early today the S&P 500 fell as low as 1,211.54, below its July 15 closing low of 1,214.91. It rallied back to finish at 1,249.05, up 1.4% for the session. That left it less than 3% above the July low.
The broader market has been weighed down this time by losses in energy and other commodity stocks and by selling in the tech sector.
Despite the resilience of most financial stocks in recent days, some market pros say it’s ridiculous to think that Lehman, WaMu or AIG could fail, or be forced into shotgun marriages with rivals, without broader fallout.
‘Lehman doesn’t go away without repercussions,’ said Peter Boockvar, equity strategist at investment firm Miller, Tabak & Co. in New York. ‘AIG is the biggest insurance company in the world. That doesn’t go down without repercussions.’
The disturbing message in the troubles of these giants, Boockvar says, is that ‘the credit contraction is intenstifying.’
‘People can’t forget the real-world effect this is having’ on the economy, he said. ‘We’re still in a bear market.’