By Greg Morcroft, MarketWatch
NEW YORK (MarketWatch) — Bank stocks rose Friday, a day after Moody’s Investors Service issued a long-awaited, comprehensive review of the sector — including downgrades that many market watchers said were less severe than feared.
Shares of blue chip J. P. Morgan Chase & Co. JPM +2.08% and Citigroup Inc. C +1.22% ranked among the financial sector’s early leaders. In the broader market, the Financial Select Sector SPDR ETF XLF +0.81% , which tracks the financial stocks in the S&P 500 SPX +0.40% rose 1%.
Some analysts greeted the Moody’s downgrades with a shrug.
“Our view is that rating agencies are fighting the last war, and have not incorporated the much improved balance sheets and liquidity that are 2-3 times higher than pre-crisis levels,” a report from research firm Creditsights said.
Others suggested that the report’s arrival finally put an end to speculation about which banks would have their ratings reduced the most and what it might mean for their funding costs.
“Prior to the announcement, the markets had been unsettled, waiting for the downgrade from Moody’s. This, coupled with the European financial crisis, has been the primary reason for the underperformance of the universal banks, in our view,” Keefe Bruyette & Woods analysts said in a Friday research note.
“Although a downgrade is not a positive, we are encouraged that the downgrades were in line or better than expectations and it appears that a headwind has been removed,” they wrote.
The analysts called Morgan Stanley MS +2.08% the big winner in the wake of the report, downgraded two notches. Many observers had expected Moody’s to announce a bigger downgrade.
“We don’t foresee the ratings changes to significantly alter the business lines at any of the U.S universal banks,” Keefe Bruyette’s note said.
Among the Dow Jones Industrial Average’s three other financial stocks, Bank of America Corp. BAC +0.32% rose 1.8%, American Express Co. AXP +1.15% added 0.8% and Travelers Cos. TRV +0.80% ticked 0.5% higher.
Greg Morcroft is MarketWatch's financial editor in New York.
