Stock Market

Financial stocks suffer broad weakness as Treasury yields drop, Capital One’s results disappoint investors

Financial stocks took a broad hit Wednesday, as investor disappointment over Capital One Financial Corp.’s
COF,
-7.49%

third-quarter results and the biggest drop in benchmark Treasury yields in three months acted as drags on the sector. The SPDR Financial Select Sector ETF
XLF,
-1.65%

fell 1.2% in afternoon trading with 57 of 65 equity components trading lower, while the S&P 500
SPX,
-0.51%

tacked on 0.2%. Capital One’s stock tumbled 7.5% to pace the losers even after the financial services company reported third-quarter earnings that rose above expectations, helped by a $770.0 million reserve release. If the reserve release was excluded, the company would have posted a net income decline, and earnings per share would have been reduced by about $1.75. Among other more heavily weighted components of the financial ETF (XLF), shares of Bank of America Corp.
BAC,
-1.92%

shed 1.3%, JPMorgan Chase & Co.
JPM,
-2.08%

gave up 1.9%, Wells Fargo & Co.
WFC,
-1.15%

fell 0.4%, Citigroup Inc.
C,
-0.48%

lost 0.7% and Goldman Sachs Group Inc.
GS,
-1.59%

gave up 1.0%. The yield on the 10-year Treasury note
TMUBMUSD10Y,
1.541%

fell 8.4 basis points to 1.535%, the biggest one-day drop in yields since July 19, after data showing a decline in durable goods data. Lower long-term yields can eat into bank profits, as that can lower the spread banks earn as they fund longer assets, such as loans, with shorter term liabilities.


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