Here's one of Wall Street's unexpected gainers on Thursday's big rally: financial stocks.
The Standard & Poor's 500 financials sector, which tracks the nation's biggest banks, was the second-best performer on the day. Only stocks in the materials sector had a better showing as the S&P 500 climbed more than 1%
What makes that odd? Well, just hours before the stock market opened for business in New York, Moody's Investors Service had some pretty disparaging things to say about banks in general. The ratings company said it was on the verge of downgrading 17 of the world's largest banks, from JP Morgan Chase & Co. to Swiss banking giant UBS AG.
Moody's said the big global banks are all dealing with challenges such as widening credit spreads, delicate funding conditions and increased regulatory requirements and restrictions. But, for investors, the threat of a downgrade didn’t change much because the bad news on banks has been out for quite some time.
“Ratings transmit information, and sometimes when the information is already there, it doesn’t change anything,” said Bo Becker, professor at the Harvard Business School.
Banking stocks declined through the early part of 2011 as investors dumped shares on fears that Europe's debt crisis would spin out of control. Investors have been moving back into the sector since the start of the year, sending names like Bank of America Corp. up 48% since January and above $8 for the first time since August.
Other notable jumps during Thursday's big rally include JP Morgan, which rose 1.5%;Goldman Sachs Group Inc.gained 1.3%; Morgan Stanley jumped 1.3%; and Citigroup Inc. gained 3%.
However, the big jump in financials might be a bit short-lived. Many banking sector stocks began to pull back in after-hours trading as investors looked to collect profits.