I can't say I was surprised that AIG (AIG) reported bad results. The extent of how bad it was is the surprising thing, and the market is responding accordingly. I've not been an advocate of buying these types of stocks for many reasons:
-Many companies are completely eroding their major competitive advantages (Think Merrill selling their Bloomberg stake, and numerous companies issuing extra stock).
-Mortgage backed debt is what got these companies into trouble in the first place. So how can they expect to recover until we see some signs of a bottom in nationwide housing prices? Or slowdown in foreclosures? Obviously these companies feel the aftershocks of what happens in the real estate market a few months later, and even though Wall Street trades on future results, its still too early to bottom fish.
Its also important to take a look at consumer behavior. I know retail has been weak, and I don't own anything in that space, I'd much rather go bottom fishing on a Target (TGT) or Kohl's (KSS) than a AIG or Citigroup.
Here's a good analysis of some middle-class retail stocks, via Trader Mark.