Financial exchange traded funds trailed the overall market early Tuesday but made up ground following news of a major step forward in negotiations over the U.S. debt ceiling.
A 5% rally in Wells Fargo (NYSE: WFC) shares after strong earnings helped offset disappointing results from Bank of America (NYSE: BAC) and Goldman Sachs (NYSE: GS).
Stocks jumped Tuesday afternoon on headlines President Barack Obama supports a plan that would reduce the deficit by nearly $4 trillion. [Debt Plan Hopes]
However, Bank of America and Goldman Sachs shares fell to new 52-week lows after lackluster earnings reports.
Bank of America lost nearly $9 billion, or 90 cents a share, in the second quarter after it booked a huge mortgage-related settlement. The stock recently fell below $10 a share.
Last month, the banking giant reached an $8.5 billion settlement in which it agreed to repurchase mortgage-backed securities packaged by Countrywide Financial, which Bank of America bought in the credit meltdown. [Mortgage Settlement]
Excluding items, Bank of America earned 33 cents a share in the latest quarter, which included $2.4 billion of reserve release.
The company doesn’t need to raise capital, CEO Brian Moynihan said Tuesday, according to WSJ Deal Journal.
Bank of America shares slipped 1.3%, while Financial Select Sector SPDR Fund (NYSEArca: XLF) rose 1.3%
Goldman Sachs shares were off 1.3% as its trading business slowed in the second quarter. Earnings came in below consensus.
“Clearly a challenging quarter and expect the stock to be weak, but with the board upping the buyback authorization by 75 million shares, management putting expense initiatives in place, and the firm well positioned as macro and regulatory conditions improve, as well as an attractive valuation, we maintain our buy [rating on the stock],” Deutsche Bank analysts said in a note.
Bank of America and Goldman Sachs together represent nearly 10% of the financial ETF’s portfolio. Elsewhere in bank earnings, Zions (NasdaqGS: ZION) shares fell almost 4% after it reported results.
The financial ETF is down nearly 8% so far in 2011 as banks have been hit by worries over the economy and new capital rules.
Financial Select Sector SPDR Fund
Bank of America
Goldman Sachs
