In a sluggish day for the market, financial stocks took the worst hit on Thursday, pulled down by a joint profit warning from Chase Manhattan Corp. and J.P. Morgan & Co.
Government reports indicating a decline in producer prices and a rise in business inventories, which could pave the way for an interest rate cut, failed to trigger a rally: The market started off negative across the board and did recover somewhat during the day. Even thrift stocks, the shining spot of the financial sector, could not resist this trend. American Banker's index of the top 50 banks fell 1.9%, its 225-bank index fell 2.08%, and the thrift index 1.02%; the Standard & Poor's 500 index fell a 1.4% and the Nasdaq composite fell 3.34%.
For weeks, bad news out of individual companies has meant bad news for financial stocks in general, as was the case Thursday when Chase and Morgan said fourth-quarter earnings would be below analyst estimates.
Katrina Blecher, a managing director of research at Sandler O'Neill & Partners, said that despite this "knee-jerk reaction" to company-specific developments, "I still believe it is a good sector to invest in." And she said she is confident that investors will relax when fourth-quarter earnings are out.
Robert Albertson, president of Pilot Financial LLC, agreed. Some investors are nervous about next year, but "most, including me, expect a soft landing," he said.
He added: "At least for the moment, the Fed has backed away from the precipice of a credit crunch. The stocks will move back up in January."
Others were not as optimistic.
"We are in a bear market," said Adam J. Lewis, senior large-cap listed trader at Keefe, Bruyette & Woods Inc. He said the Chase/Morgan warning came as no surprise but sent a shudder through investors nonetheless.
"We are in the middle of the warning period, and there is a blow-up every day," Mr. Lewis said.
Furthermore, he said, nobody can be really sure whether the slowing of the economy is turning into a hard landing. "People wanted to jump on the financials bandwagon, but now the immediate fundamental concerns prevail."
An interest rate cut might ease those worries, but it would not necessarily spark a bull market, Mr. Lewis said. In the short run, the market will find some relief here and there, but the bear-market die is cast, he said.
David P. Lazar, co-head and managing director of investment banking at Berwind Financial LP, said, "Whether the landing is soft or hard, it is still a slowdown, and that cannot be good for the sector."
The Department of Labor announced on Thursday announced that producer prices for finished goods rose 0.1% in November. However, the core PPI - producer prices excluding energy and food - was unchanged. The Department of Commerce reported that inventories rose 6% in October, the latest month for which data are available, while business sales fell 2%.