By John Spence
The overall U.S. financial sector was little changed early
Wednesday in quiet trading as shares of bailed-out mortgage giants
Fannie Mae (FNM) and Freddie Mac (FRE) lost some of their recent
steam, shrugging off an upbeat report on new-home sales.
The Financial Select Sector SPDR Fund, an exchange-traded fund
indexed to large-cap financial stocks, was flat in morning
trading
New-home sales rose nearly 10% in July, the fourth month of
gains, the Commerce Department reported Wednesday. The news fed
hopes the housing market is finally forming a bottom after three
years of pain, but it failed to push what have been red-hot shares
of Fannie and Freddie significantly higher.
Investors have been bidding up the mortgage-finance firms that
have been placed in conservatorship by the government, and the
sharp rally has confounded analysts who say the companies are so
deep in debt that their common equity is worthless. Investors have
scooped up the stocks, as well as other beaten-down financial firms
such as Citigroup Inc. (C) and Bank of America Corp. (BAC), in
search of quick trading profits.
"Financials have been in the driver's seat since the March
lows," said Cormark Securities analysts in a research note
Wednesday.
They said financial shares are "following the roadmap" of the
technology sector after the dot-com bubble popped in 2000, as tech
stocks led the market higher. "A breakdown in the relative strength
of financials should act as a warning for the broad market," the
analysts warned.
Among individual financial stocks Wednesday, shares of Cardinal
Financial Corp. (CFNL) and First Commonwealth Financial Corp. (FCF)
moved higher on analyst upgrades.
Investors will be looking for any news coming out of a Federal
Deposit Insurance Corp. meeting on Wednesday. The FDIC could ease
rules to allow private-equity firms to invest in troubled banks,
according to reports.
-By John Spence; 415-439-6400; AskNewswires@dowjones.com