Financial stocks took a broad hit Wednesday, as investor disappointment over Capital One Financial Corp.’s COF, -7.27% third-quarter results and the biggest drop in benchmark Treasury yields in three months acted as drags on the sector. The SPDR Financial Select Sector ETF XLF, -1.55% fell 1.2% in afternoon trading with 57 of 65 equity components trading lower, while the S&P 500 SPX, -0.35% tacked on 0.2%. Capital One’s stock tumbled 7.5% to pace the losers even after the financial services company reported third-quarter earnings that rose above expectations, helped by a $770.0 million reserve release. If the reserve release was excluded, the company would have posted a net income decline, and earnings per share would have been reduced by about $1.75. Among other more heavily weighted components of the financial ETF (XLF), shares of Bank of America Corp. BAC, -1.74% shed 1.3%, JPMorgan Chase & Co. JPM, -2.08% gave up 1.9%, Wells Fargo & Co. WFC, -0.84% fell 0.4%, Citigroup Inc. C, -0.25% lost 0.7% and Goldman Sachs Group Inc. GS, -1.65% gave up 1.0%. The yield on the 10-year Treasury note TMUBMUSD10Y, 1.541% fell 8.4 basis points to 1.535%, the biggest one-day drop in yields since July 19, after data showing a decline in durable goods data. Lower long-term yields can eat into bank profits, as that can lower the spread banks earn as they fund longer assets, such as loans, with shorter term liabilities.
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