Goldman Sachs Cuts View Of Financial Stocks

Strategists at Goldman Sachs Group Inc.(GS) advised clients on Thursday to pare back exposure to financial stocks after four months beating the broader market.

Goldman's chief stock strategist David Kostin reduced his view of financial stocks to "neutral" from "overweight" in a research note to clients.

Kostin justified noted that a handful of sector stock catalysts, such as Federal Reserve approval of dividend raises, are now expended.

Financial stocks on the Standard & Poor's 500 index fell 1% recently, as J.P. Morgan Chase & Co. (JPM), Citigroup Inc. (C) and Goldman Sachs led sector decliners. Financials stocks have fallen for five straight sessions.

In early December, Goldman analysts upgraded financial stocks to "outperform" for the first time since the financial crisis. The upgrade was premised on a strengthening U.S. economy and on the prospect for banks to raise dividends with the blessing of the Fed.

Financial stocks on the S&P 500 have risen 10% since the market close preceding Goldman's upgrade, versus an 8.5% rise in the benchmark.

Last month, the Fed approved dividend increases from banks including J.P. Morgan Chase, Wells Fargo & Co. (WFC) and State Street Corp. (STT). The Fed, however, did not approve a dividend boost from Bank of America Corp. (BAC).

"We upgraded the financials to overweight...on the belief that risk/reward was positive for the sector for the first time since the financial crisis," Kostin said in the report. Financial stocks are likely to perform generally in line with the market for the next three to six months, he said.

December's bullish report emphasized the financial sector's improving growth outlook and said that the dividend increases should "tip the balance" for financial stocks away from concerns like regulatory reform and the adoption of new bank capital requirements.

But headline pressures have come to weigh on financial stocks in recent days, though Kostin's note didn't mention specific events.

The Wall Street Journal reported U.S. investigators are examining whether some of the world's biggest banks manipulated the key London interbank offered rate in the years leading up to the financial crisis.

On Wednesday, U.S. bank regulators hit major financial institutions with detailed orders to revamp the way they deal with troubled mortgage borrowers. Officials said fines related to improper home foreclosure practices are on the way.

Kostin said the industry would need to see additional loan growth, more dividend announcements and "better-than-expected resolution of regulatory uncertainty" before advising clients to take on increased exposure to financial stocks.

-By Chris Dieterich, Dow Jones Newswires; 212-416-2611; christopher.dieterich@dowjones.com

State Street (NYSE:STT)
Historical Stock Chart
From May 2024 to Jun 2024