The stock market took more punishment Monday, and shares of financial companies fell with the generally pessimistic mood.

The American Banker index of 225 banks lost 1.5%, and its index of top 50 banks 1.7%. The Dow Jones industrial average lost 0.8%, with components Citigroup and J.P. Morgan & Co. dragged down in the selloff. The two lost $1, or 1.9%, and $3.75, or 2.4%, closing at $50.50 and $153.25 respectively. The S&P 500 index fell 1.1% and the Nasdaq shed 2.05%.

Investment firms were among those hardest hit. Goldman Sachs Group Inc. $2.8125, or 3.2%, to $86.375 and Lehman Brothers Holding $1.875, or 3.6%, to $49.8125.

Dean Eberling of Keefe, Bruyette & Woods Inc. wrote in a research report issued Monday that “brokerage stocks may continue to feel pressure” as “the potential turnaround in underwriting before yearend could be hampered and further flame concern over revenue shortfalls.”

Nevertheless, Lauren A. Smith, who also covers investment banks at Keefe, Bruyette & Woods, reiterated her “buy” for Goldman Sachs, Lehman, and A.G. Edwards Inc. and her “market perform” for Morgan Stanley Dean Witter & Co., and Merrill Lynch, among others.

Wasserstein Perella Securities analyst James P. Hanbury took a different view and cut his rating for Goldman, as well as for J.P. Morgan to “hold” from “buy.” He declined comment on the rationale behind the changes.

Meanwhile, Wells Fargo & Co. economist Don Hilber offered a mixed outlook on the financials, noting they have generally outperformed the market this year but remain vulnerable to a potential economic jolt. He noted financials have appreciated on average about 19% year-to-date, while industrials and Nasdaq have skidded.

But Mr. Hilber warned that a harder economic landing than commonly expected could prove troubling for those banks that have major lending exposure to industries whose fortunes are closely tied to the economic cycle. In a merely slowing economy, the loss in credit quality could be outbalanced by the benefits of a cut in interest rates, he said, and indeed result in a continuing upswing for valuations.

Christine Callies, chief U.S. investment strategist with Merrill Lynch, agreed that the relative strength of financial stocks this year may leave the group more vulnerable than most to a downturn.

Citing financial services, health care, and consumer staples as examples, Ms. Callies said that sectors “that have outperformed this year and are optimistically priced, are susceptible to a shakeout next year.”

Dow Jones contributed to this report.

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