The horrible numbers from the job front are rattling the financial sector.
The 15 worst-performing stocks Friday following the release of the disappointing jobs report are all financial stocks, including E-Trade (ETFC), down 5.8%, Charles Schwab (SCHW) down 5.7% and Citigroup (C) down 5%, according to a USA TODAY analysis of data from S&P Global Market Intelligence. The Financial Select Sector SPDR exchange-traded fund (XLF) is down 2.2% – the hardest hit of all of the 10 market sectors.
Investors are reeling from the lackluster jobs report showing just 38,000 jobs were created during the month of May, which missed expectations for 160,000 new positions from economists. The stunningly bad showing on the jobs front hammers financials hard because it dramatically lowers the odds of a boost in short-term interest rates by the Federal Reserve anytime soon.
That’s bad news for financial companies because they are big winners from higher rates – especially the online brokerage firms like E-Trade and Schwab. Both of them get large amounts of profit by collecting interest from cash stored uninvested in customers’ accounts, which they pay next to nothing on in terms of interest. With the odds of a rate hike dashed, that’s a hit to what investors would have expected these companies to earn on the so-called “float.”
If there was any place to hide from the market’s sell-off following the jobs news, it was utilities, which have been one of best-performing areas of stocks all year. The Utilities Select Sector SPDR Fund (XLU) is up 1.6% Friday – the top performer of the 10 sectors. Utilities are getting a bump because higher interest rates would have made the lucrative dividend yields of the sector relatively less attractive as investors could have gotten improved rates elsewhere. Utilities stocks are up 16% this year.
But it was mostly ugliness all around. Seven of the market sectors were down because investors are realizing low rates might be here for a while longer.
WORST PERFORMING S&P 500 STOCKS FRIDAY
Company, Symbol, % Ch. Friday
E-Trade, ETFC, -5.8%
Charles Schwab, SCHW, -5.7%
Citigroup, C, -5%
Bank of America, BAC, -4.5%
Citizens Financial, CFG, -4.3%
Regions Financial, RF, -4.1%
Lincoln National, LNC, -4.1%
Navient, NAVI, -4%
Fifth Third Bancorp, FITB, -4%
Comerica, CMA, -4%
Northern Trust, NTRS, -3.9%
Source: S&P Global Market Intelligence, USA TODAY