The momentum is seeping out of financial stocks

Industries Dow Jones Newswires

(Reuters)

Financial stocks are having a rough run this week, with banks getting hit hard by falling rates and insurer stocks getting hammered by the expected impact of another hurricane. 

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The S&P 500 financial sector is down 1.8% on Thursday and 3.7% so far this week, making it the worst performer among the index's 11 sectors over both stretches. The S&P 500 is down 0.1% Thursday and 0.6% this week. 

Thursday's move was enough to push the financial sector below its 200-day moving average, putting it on pace to close below that level for the first time in more than a year. When an index or sector trades below the average of its recent performance, market technicians say it tends to signal a loss of momentum, and can herald further weakness in the days ahead. 

Just 15% of financial stocks are trading above their 50-day moving averages this week, marking a low point after dropping steadily over the course of the summer, according to Bespoke Investment Group. That "breakdown" in financials made it the weakest sector in the S&P, the firm said. 

To a lesser extend than the financial sector, the broader stock market has suffered from a decline in the breadth of the rally, a sign of caution for many chart watchers. It comes during a historically volatile part of the year, and as U.S. investors fret about a range of issues, from heightening tensions with North Korea to another hurricane bearing down on Florida to soft inflation data. 

Still, financials are getting hit hardest. Bank stocks tend to get squeezed when long-term rates fall, because it narrows the difference between what banks can earn from borrowing on a short-term basis and lending on a long-term basis, known as net interest margin. 

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The yield on the 10-year Treasury note was trading at 2.042% Thursday, on pace to close at a fresh low for the year. The differential between the 10-year yield and the two-year yield, at 0.77 percentage point, was the lowest in a year, according to Tradeweb data. 

Shares of Bank of America Corp., one of the most rate sensitive of the big U.S. banks, are down 5.1% so far this week. Morgan Stanley is down 4.7% while Goldman Sachs Group Inc. is down 4.4%. 

Insurer stocks were also hit as Hurricane Irma took aim at Florida after hitting the Caribbean. The Category 5 storm, which remains one of the most powerful ever recorded, follows soon after Hurricane Harvey. Florida homeowners largely buy their coverage from smaller insurers, which are required to backstop their obligations with reinsurance, so shares of those companies were taking the biggest hit on Thursday. 

XL Group Ltd. was down 5.5% on Thursday and Everest Re Group Ltd. was down 6.2%, making them among the worst performers in the S&P 500. For the week, both were down more than 10%. 

Some property insurers were also down by a smaller amount. Travelers Companies Inc. fell 2.3% on Thursday and 4.6% for the week. Allstate Corp. dropped 1.8% on Thursday and 4.3% for the week. And Progressive Corp. dropped 2.1% Thursday and 3.6% for the week.