The continued anxiety surrounding the U.S. deficit led financial stocks lower today, with insurance company Ace Ltd. (ACE) emerging as one of the only gainers on the financial S&P 500. Ace’s shares closed higher for the day after the company released an earnings point with optimistic guidance. Ace’s second-quarter earnings declined by 10 percent, but strength in core profits and a solid outlook for next quarter led some risk takers toward shares today.
Perhaps the stock garnering the most attention today among financials was the credit raters Moody’s (MCO). Moody’s has issued repeated warnings regarding the U.S. credit rating and has threatened to lower it if a deficit agreement is not reached by August 2. Moody’s Corp. was among top decliners on the S& P 500 as a result of their most recent announcement. In spite of a 56 percent surge in second-quarter profit new troubles could arise with European debt woes and the potential downgrade of the U.S.’s triple-A debt rating.
Even in the absence of a default, a downgrade may be on the horizon, raising borrowing costs and putting a sharp dent in the economic recovery.
According to Credit Suisse (CS), strategists, there is a 50 percent chance of a credit rating downgrade on U.S. debt regardless of the ceiling being raised and extreme tightening measures are put on hold. Additional buckling in the financial sector today was caused by unexpected weakness in U.S. manufactured goods for June.
In the aftermath of this news, major financial stocks listed on the Dow Jones Industrial Average including Bank of America Corp. (BAC), J.P. Morgan Chase & Co. (JPM), Citigroup (C ) and Morgan Stanley (MS) were all lower today. The potential for higher borrowing costs would cripple banks that continue to struggle with weak housing markets and unemployment issues.