Financial Firms Could Face Sell Off Today

GOOD MORNING. Stocks in Asia closed higher today; U.S. futures are pointing to a lower open.

Bank stocks have had a terrific run lately, soaring on optimism that the economy—and their profits—are recovering. But financial firms could face selling pressure today, following a downgrade of Goldman Sachs (GS) by independent analyst Meredith Whitney. One of the most influential analysts on the Street, Whitney revised her third-quarter estimates and cut her rating on Goldman from a Buy to a Neutral in a summary note to clients this morning. Goldman was Whitney’s only Buy-rated stock and she’s now urging clients to sell or hold all nine large financial firms she covers.

Whitney carved a reputation as a maverick analyst in 2007 when she correctly predicted that Citigroup (C)would have to cut its dividend and that the rest of the banking sector was in trouble. It was an unpopular call at the time because bank profits (and the markets) were near record highs. But Whitney was proven right and became known as one of the most feared analysts on the Street (she’s also married to a professional wrestler and wears a black leather jacket on her website). Whitney had upgraded Goldman in July and the stock went on to soar 34%, beating the market. It’s also up 125% this year. The firm is scheduled to report third-quarter earnings on October 15 and analysts expect profits to have nearly tripled, hitting $4.46 a share or $2.3 billion.

Not everyone shares Whitney’s sentiment, of course. Veteran bank analyst Michael Mayo of CLSA upgraded Goldman from an underperform rating to an outperform last week. Analyst Richard Staite of Atlantic Equities in London expects Goldman to deliver a healthy third-quarter earnings report, driven by strong fixed-income trading. The company is generating billions in surplus capital, he points out, and can use that cash to buy back stock and boost EPS and tangible book value per share. The stock has had such a strong run this year that Staite says it’s unlikely to see “dramatic upside” over the near term, though he believes its prospects are good longer-term. It’s also one of the last investment banks left standing, following the collapse of rivals Lehman Bros. and Bear Stearns. And there’s one highly respected investor who owns a stake in Goldman and still appears confident in its future: Warren Buffett.

IN OTHER NEWS:

Did back-to-school spell splurge-on-a-computer this year? We’ll find out when Intel (INTC) releases its earnings report after the market closes this afternoon. Analysts are looking for the semiconductor-maker to deliver a third quarter that is down from last year, but better than initially expected--with earnings of 27 cents per share, down from 35 cents a share the same quarter a year ago, and revenue of $9.02 billion, down from $10.2 billion a year ago.

If Intel’s results do come in ahead of expectations, we’ll see a stronger bump than usual from the second quarter to the third, potentially setting the stage for a “muted” seasonal bump in the fourth quarter, says Patrick Wang, an analyst at Wedbush Morgan Securities. Looking ahead, holiday retail sales will be key for Intel’s first quarter next year, Wang adds; he expects business spending to pick up by then, with upgrades to be concentrated in the second half of the year, after Windows 7 has been out long enough to see some security updates.

Chipmakers like Intel are typically considered leading indicators for the broader tech sector. Intel is also one of the first Dow components to release its third quarter earnings. Alcoa (AA) reported better-than-expected third quarter results last week, and Johnson & Johnson (JNJ) reports before the market opens today. Intel’s report today will reflect on the tech sector as a whole – and management comments will help shape expectations for next year.

The worst may be behind for semiconductor companies, says Vijay Rakesh, an analyst at ThinkEquity, LLC. “There is definitely a little more optimism in the air,” Rakesh says.