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Stock Strategist

Our Outlook for the Financial-Services Sector

Gloom replaces froth as the financial sector takes its lumps.

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It is difficult to imagine a more exciting third quarter than the one we've had in financial services. The ready money, cheap debt, and private equity buyouts that drove the sector last quarter dried up abruptly, and we were instead faced with a credit crisis. Financial stocks were punished, giving investors both bargains and bankruptcies. As we wrote in August, there was a virtual fire sale on financial-services stocks as the outlook for the sector blackened. And then on Tuesday, the Fed slashed its target rate by 50 basis points, in what was either a wise move or a capitulation to Wall Street (depending on your point of view). In any case, the dramatic rebound in stock prices served up enough euphoria to dispel some of the late-summer gloom.

Rachel Barnard has a position in the following securities mentioned above: BAC, CME, CFC. Find out about Morningstar’s editorial policies.