In a fresh blow to the financial sector, JP Morgan Chase cut the earnings estimates for several big Wall Street firms, sending their shares sharply lower.
The profit outlook was lowered for Goldman Sachs, Lehman Brothers, Merrill Lynch and Morgan Stanley. In changing its outlook for the sector, JP Morgan cited writedowns, slowdowns in mergers and acquisitions and reduced opportunities for other fees.
Meanwhile, Punk Ziegel analyst Richard Bove downgraded Bear Stearns, Goldman Sachs and Lehman to "sell" from "market perform," saying the retrenchment under way will force significant adjustments in the way the businesses are being run.
The moves sent financial shares lower, which helped pull down the major averages.
"The financials are still not looking very attractive. It's going to be some time before we see someone eager to move in there," said Peter Kenny, managing director at Knight Equity
Markets in Jersey City, New Jersey.
"Financials are the main story," said Peter Boockvar, equity strategist at Miller Tabak & Co in New York. "We had the rate cut rally and now we have a jolt back to reality. The reality being, a slower economy and slower earnings."
Adding to gloom on Wall Street, the U.S. Treasury official in charge of debt management said on Tuesday that the process of rebuilding confidence in financial markets will be "long and slow."
Goldman Sachs cut its forecast for 2007 and 2008 operating earnings per shares for S&P 500 companies.