Sector Update: Financial Stocks Decline Friday Afternoon

By Steve Gelsi

Bank stocks shed more red ink even as Baird analyst upgrades Bank of America and JPMorgan on valuation

Bank stocks moved into the red Friday to bring their losses for the week into the 10%-plus range as the February jobs report provided no lift and sector investors took their queues from the U.S. government-debt market.

Investors mostly brushed aside upgrades of Bank of America Corp. and JPMorgan Chase & Co. by Baird analyst David A. George, who said it may be time to wade into some names.

As yields on the 10-year Treasury BX:TMUBMUSD10Y fell and prices of government debt rose, bank-stock prices have continued to weaken.

As yields drop, banks are under more pressure to cut the interest they charge for mortgages and other loans. It's also been a signal to sell cyclical stocks such as banks, said Truist analyst Brian Foran.

"Lower rates plus a flatter [yield] curve and wider credit spreads equals sell cyclicals," Foran said.

Banks are also facing more uncertainty tied to tariffs and other changes in Washington, D.C., as corporations and private-equity firms tap the brakes on dealmaking until some of the dust settles.

"It wasn't obvious banks were going the biggest losers from trade wars, and guidance updates this week were benign," Foran said. "There is still a lot of uncertainty."

Also read: Private-equity buyout activity slows down in a troubling sign for investment banks

The last seven days marked the third "brutal" week in a row for bank stocks, he said.

Meanwhile, Baird analyst George upgraded Bank of America's stock to outperform from neutral.

"We have always been fans of the BAC franchise given its best-in-class deposit franchise, consistent execution, relatively low credit risk, and top-tier markets businesses, but felt the valuation didn't make sense - we think it does now with the stock in the low $40s," George said in a research note.

George also upgraded JPMorgan Chase's stock to neutral from underperform.

"We aren't buyers of the stock but don't believe it makes sense to be short, as defensive-minded market participants will likely move into JPM if economic data gets a little more volatile," George said. "JPM is very well-positioned to take market share throughout its businesses while expanding margins and returns, and its enviable capital position gives the company ultimate flexibility to invest and return capital to the extent it makes economic sense."

Baird also upgraded Huntington Bancshares Inc.'s stock (HBAN) to outperform from neutral, calling the company a "high-quality regional" bank.

Citigroup Inc.'s stock (C) is down 13.7% on the week and 17.5% in the past month.

Morgan Stanley's stock (MS) has fallen 12.5% in the past week including a 2.4% drop on Friday. It's down nearly 17% in the past month.

JPMorgan's stock (JPM) has fallen nearly 9% in the past week, while Bank of America's stock (BAC) is down about 11.4% over the same time period.

Wells Fargo & Co.'s stock (WFC) has fallen 11.9% this week, including a 5% drop on Friday. Goldman Sachs Group Inc. (GS) has lost about 11.6% of its value this week, including a drop of 3.1% on Friday.

The broad banking sector fell this week as well, with the KBW Nasdaq Bank Index BKX down 10.7% on the week including a 2.6% drop on Friday.

-Steve Gelsi

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All three major US stock indexes were down in late-morning trading on Friday, as a weaker-than-expected jobs report and ongoing tariff uncertainty rattled investors.

The February employment reported showed nonfarm payrolls rose by 151,000, below the 160,000 jobs increase expected in a survey compiled by Bloomberg as of 7:10 a.m. ET, while January payrolls saw a downward revision to a 125,000 increase and December payrolls were revised up to a 323,000 increase, for a net downward revision of 2,000 jobs. The unemployment rate rose to 4.1% in February from 4.0% in January, compared with no change expected, while the labor force participation rate declined to 62.4% from 62.6% in the previous month, and the size of the labor force contracted.

In company news, Broadcom reported fiscal Q1 non-GAAP earnings late Thursday of $1.60 per diluted share, up from $1.10 a year earlier and above the consensus estimate of analysts surveyed by FactSet calling for $1.51. Fiscal Q1 revenue was $14.92 billion, up from $11.96 billion a year earlier and above the FactSet consensus estimate of $14.62 billion. The company expects fiscal Q2 revenue of about $14.9 billion, above the FactSet consensus estimate of $14.71 billion. Broadcom shares were up 3.0% around midday.

Nasdaq's Nasdaq 100 Index fell 0.7% Friday and is now down over 10% from its February record — the threshold representing a technical correction, Bloomberg reported. Separately, Nasdaq has been engaging with regulators, market participants and other stakeholders about enabling 24-hour trading five days per week on the Nasdaq Stock Market, President Tal Cohen said Friday in a post on LinkedIn. Nasdaq shares were down 3.2%.

Walgreens Boots Alliance said it reached a definitive agreement late Thursday to be acquired by an entity affiliated with Sycamore Partners for up to $23.7 billion. Walgreens shares were up 7%.

Costco Wholesale reported fiscal Q2 net income late Thursday of $4.02 per diluted share, up from $3.92 a year earlier but below the FactSet consensus estimate of $4.11. Fiscal Q2 total revenue was $63.72 billion, up from $58.44 billion in the year-ago period and above the FactSet consensus of $63.11 billion. Costco shares were down 7.0%.

Artificial intelligence researchers at Microsoft believe they have achieved a notable milestone in the company's effort to reduce its dependence on OpenAI's technology for most of its AI products, The Information reported Friday, citing someone involved in the effort. Microsoft shares were down 2.5%.

Hewlett Packard Enterprise reported Q1 non-GAAP net income late Thursday of $0.49 per diluted share, up from $0.48 a year earlier but below the FactSet consensus of $0.50. First-quarter revenue was $7.85 billion, up from $6.76 billion in the year-ago period and above the FactSet consensus of $7.81 billion. For Q2, the company projects non-GAAP EPS of $0.28 to $0.34 on revenue between $7.2 billion and $7.6 billion. Analysts expect $0.50 and $7.92 billion, respectively. For fiscal 2025, the company expects non-GAAP EPS of $1.70 to $1.90, with revenue growing 7% to 11%. Analysts expect $2.13 per share. Hewlett Packard also plans to reduce its workforce by 5%, or about 2,500 employees, over the next 12 to 18 months, the company said during its earnings call. Hewlett Packard shares were down 16.7%.

Nasdaq's Nasdaq 100 Index fell 0.7% Friday and is now down over 10% from its February record — the threshold representing a technical correction, Bloomberg reported.

(Market Chatter news is derived from conversations with market professionals globally. This information is believed to be from reliable sources but may include rumor and speculation. Accuracy is not guaranteed.)