U.S. Stocks Rise As Banks Rally After Moody’s Downgrades

U.S. stocks advanced, following yesterday’s global selloff, as bank downgrades from Moody’s Investors Service were no worse than the firm had warned.

The Standard & Poor’s 500 Index added 0.8 percent to 1,335.46 at 4 p.m. New York time. The benchmark measure tumbled 2.2 percent yesterday for the second-biggest loss this year.

“The bad news is out and it was not as bad as expected,” saidJeffrey Saut, chief investment strategist at Raymond James & Associates in St. PetersburgFlorida. His firm oversees $350 billion. “They had been telegraphing the bank downgrades for a long time. Why does anybody pay any attention to those rating companies? They missed it during the financial crisis.”

The prospect of downgrades had weighed on the financial industry since Moody’s said Feb. 15 it was reviewing 17 banks with capital-markets operations because of fragile confidence and tighter regulations that pinched revenue. Pressure mounted as Europe’s debt crisis intensified.

The reductions by Moody’s are “a mea culpa from 2007 and 2008,” said James Leonard, a credit analyst at Morningstar Inc. “The banks have gotten so much better in the last few years in terms of capital, yet their ratings keep going down. What does that tell you? That the ratings were so wrong before.”

Equities tumbled yesterday, while commodities entered a bear market, after signals of a global slowdown in manufacturing added to disappointing housing and labor market data at the world’s largest economy. The reports came out a day after theFederal Reserve lowered its growth and employment estimates while signaling it may add to its record stimulus.

Europe Efforts

Investors also watched news out of Europe. The euro strengthened against the dollar after theEuropean Central Bank eased terms for collateral, boosting speculation the central bank will announce a third set of long-term loans. Spanish policy makers are considering forcing investors who hold equity and junior debt in banks to absorb losses in a restructuring, according to a person with knowledge of the plan.

“Time is running out,” said Brad Sorensen, director of market and sector analysis at San Francisco-based Charles Schwab Corp. His firm has $1.76 trillion in client assets. “These tiny things may buy them a little time. They’re just very small measures compared to the problems that they have over there.”

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

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