Economic Data Trump Strong Earnings For Financial Stocks

27th Jul 2010 16:52

By Jennifer Cummings Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--Mixed economic data took the steam out of a rally in financial sector, which led markets higher early in the session Tuesday on a wave of strong earnings reports. Earnings from Regions Financial Corp. (RF) and other financial companies, positive housing price data released Tuesday and news late Monday that new international bank-capital standards have been watered down pushed the sector higher in early trade, but disappointing reports on consumer confidence and regional manufacturing activity weighed on the broader market, which took the financial sector with it. After gaining as much as 1.5% earlier in Tuesday's session, the financial group of the S&P 500 was recently down 0.3%. The group is still down about 7.4% over the last three months. Regions Financial traded near the top of the S&P 500, recently gaining 4.4% to $7.41 after reporting better-than-expected second-quarter results and declining loan-loss provisions. Nasdaq OMX Group Inc. (NDAQ) was also near the top of the market Tuesday, after reporting its second-quarter earnings jumped 39%, beating analysts' estimates, as revenue climbed. The stock was recently up 3.3% to $19.63. Meanwhile, smaller players PrivateBancorp Inc. (PVTB), FirstMerit Corp. (FMER) and Umpqua Holdings Corp. (UMPQ) all posted better-than-expected earnings, giving their stocks a big boost. PrivateBancorp gained 12% to $11.82 as FirstMerit rose 6.9% to $19.89 and Umpqua climbed 4.7% to $12.85. And European financial stocks got a lift from the news that international banking rules, known as Basel 3, will have easier capital standards than previously expected, meaning most banks won't have to immediately raise significant amounts of new capital. American depositary shares of Swiss bank UBS AG (UBS) rose 8.2% to $16.39, as U.K. bank Barclays PLC (BCS) climbed 6.9% to $21.17. Tuesday's volatility in the financial sector is nothing new and is unlikely to dissipate any time soon as financial companies will hurt by concerns about slow revenue growth and macroeconomic risks like the high U.S. unemployment rate. Raymond James analysts said bank stocks will tread water--albeit frantically at times--until economic data provides a more certain outlook, but investors could use this to their advantage. "Volatility should provide excellent buying opportunities as investors wait for more encouraging economic data," the analysts said in a note. A recovery in the banking sector is coming, but much more gradually than many had been expecting, Sandler O'Neill & Partners analyst Kevin Fitzsimmons said. He noted that recent earnings reports have shown that credit deterioration is moderating, but at an "excruciatingly slow pace." -By Jennifer Cummings, Dow Jones Newswires; 212-416-2474; [email protected] (END) Dow Jones Newswires July 27, 2010 11:52 ET (15:52 GMT)