Brokers Wilt in Debt Market's Heat
Worries about the health of U.S. credit markets are making it an uncomfortably hot summer for financial stocks.
With a record-low default rate, generally healthy corporate balance sheets and strong earnings growth, the financial stocks should by all rights be enjoying healthy gains.
But ever since low-quality debt in the subprime mortgage market hit the skids this spring, the flow of cheap financing that bolstered the buyout boom has started to slow. That slowdown -- and some high-profile scares like the near collapse of two highly leveraged Bear Stearns (BSC) hedge funds -- has pressured the sector even as the Dow Jones Industrial Average soars to new records and big mergers continue to be announced.
Stocks like Bear, Goldman Sachs (GS), Merrill Lynch (MER), Morgan Stanley (MS) and Lehman Brothers (LEH) have been hit hard in recent weeks. Bear Stearns has fallen 16% since February and Merrill Lynch has slipped 11% since a January peak. The financial sector of the big-cap S&P 500 is the index's worst performer this year, down 3%.Even the industry's gold standard, Goldman Sachs, is off 5% since last month -- and some watchers say the worst is yet to come. "The corrective phase isn't over," says John Roque, senior vice president and technical analyst at Natexis Bleichroeder. "More than likely, it is going to be uncomfortable," he writes in a recent note, like sweltering under "the bakin' Brooklyn sun."
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV