--Financials higher in line with broader market as cliff deal
develops
--Genworth up the most; Morgan Stanley, Bank of America lead
among big banks
--Even partial solution could avoid hard hit for financial
sector
(Updates with closing stock moves.)
By Christian Berthelsen
Financial shares rose along with the broader markets Monday as
the outlines of at least a partial deal began to take shape to
avert the fiscal cliff's potentially recession-inducing combination
of tax increases and spending cuts.
Shares were higher throughout the day and finished on an upswing
after President Barack Obama announced Monday afternoon that a
potential deal was in the works though not done yet. Terms of the
deal mentioned by the president include preserving the current tax
structure for all but the most affluent Americans, keeping certain
tax credits in place and extending unemployment benefits.
Financial stocks in the S&P 500 index ended the day 1.4%
higher, compared with a 1.7% rise in the S&P as a whole and a
1.3% rise in the Dow Jones Industrial Average of blue-chip
companies.
The president conceded the fledgling deal falls short of the
far-reaching solutions hoped for in the aftermath of the election,
but analysts said it may be enough to prevent the hit to financial
companies that would have been expected if lawmakers failed to find
any resolution.
"If we get through this and it could soften the economy up a bit
but probably not cause a recession, it's not great but it doesn't
get worse, that should be somewhat favorable backdrop" for
financial shares, said Fred Cannon, director of equity research at
KBW Inc.
Conventional wisdom has been that a dive off the fiscal cliff
would be particularly bad for financial companies, since the
decline in consumer spending could be compounded by downward
pressure on interest rates, undercutting lending profits and
investment returns. Traders said it was hard to make much of the
market performance given New Year's Eve volumes that were about a
third below normal levels.
"Financials are acting relatively well but it's very muted
volumes today with the year-end," said Sean Kelly, head of equity
at Knight Capital Group.
Traders said optimism that a deal could be reached was buoying
many financial shares, with most stocks of financial companies in
the S&P 500 in the black. The sector has been the strongest
performer in the equity market this year, highlighted by Bank of
America (BAC) shares more than doubling.
"I think a lot of people are generally surprised the market
isn't lower with all the concerns about the fiscal cliff stuff, but
there seems to be some optimism out there that we're going to get
some sort of resolution," said R.J. Grant, assistant director of
equity trading at KBW. Still, "it's all conjecture until something
gets announced."
Genworth Financial Inc. (GNW) was up the most among major
financials, rising 4%. Among major banks, Morgan Stanley (MS) and
Bank of America were each up more than 2%.
NYSE Euronext was the only financial company in the red by the
end of the day, down 0.3%.
Write to Christian Berthelsen at
christian.berthelsen@dowjones.com