Financial stocks continued to be driven by rising interest rate fears Monday in the wake of signals last week from Federal Reserve Chairman Ben Bernanke that the Federal Open Markets Committee will soon begin tapering its economic stimulus. While analysts see several reasons to view rising rates as a bullish sign for financial stocks, few investors wanted to stick their necks out amid a broad stock market selloff.
"CIT is one of the most widely held names among hedge funds and is liquid, which on a day such as today is a combination that can translate into large volumes to the downside. From a fundamental standpoint, however, CIT actually stands to benefit from higher interest rates," wrote BTIG analyst Mark Palmer, in a brief email exchange after Monday's close.
CIT shares had been beating the market since late last month when the Fed terminated a written agreement with the lender that reduced its flexibility regarding share buybacks or an increased dividend. With the lifting of that agreement, which had been in place since 2009, CIT is seen as more likely to sell itself to a bank. Nonetheless, Drexel Hamilton analyst David Hilder wrote in a research note earlier this month he believes any potential sale of CIT is unlikely near term. From May 29 until Wednesday, when the Fed began sending newly hawkish signals, CIT shares were up nearly 7% versus a flat S&P 500. Since that time, however, CIT shares are down 6.81% versus a 3.43% decline for the S&P.Elsewhere in the financial sector Monday, popular exchange traded fund Financial Select Sector SPDR (XLF) fell 1.80% to $18.77. Contributing to the fund's decline were components Bank of America (BAC - Get Report), Citigroup (C - Get Report) and Wells Fargo (WFC - Get Report), down 3.07%, 3.05% and 2.83% respectively. Sandler O'Neill strategist Robert Albertson says it is common for bank stocks to fall as interest rates start to rise over what he described on Bloomberg Television Monday morning as a "knee-jerk" response. Nonetheless, he says rising rates will ultimately prove "positive for wealth." -- Written by Dan Freed in New York. Follow @dan_freed