Bank stocks fell Monday, prompting analysts to ponder whether a correction is under way.
Frank Barkocy of Josephthal, Lyon & Ross said he expects bank stock prices to drop by roughly 5%. "Investors should aggressively reposition in bank stocks," he said. "There is no time like the present."
Banks on Mr. Barkocy's coverage list - which range from superregional banks to small community banks and thrifts - were up 6.3% from July 31 through Friday, while the Dow Jones industrial average was up 3.5%, Mr. Barkocy said. The S&P was up 4.2% during the same period.
He pointed to National City Corp. (up 10.8%); PNC Bank Corp. (up.10.3%); Fleet Financial Group (up 8%); and KeyCorp (up 4.5%) as examples of banks ripe for profit taking.
Analyst Michael Mayo of Lehman Brothers Inc. agreed that "consolidation" in the sector is likely.
"Some of the banks went up so strongly and so quickly that a slight correction wouldn't be surprising," he said. "It is a marathon, not a sprint, and the banks have acted like it is a 100-yard dash for the past month. It would be natural for them to slow down."
The Standard & Poor's bank index fell 0.62% Monday, while the Dow Jones dropped 0.50%. The Nasdaq Bank Index tumbled 0.21%, and the S&P 500 fell 0.47%
The selloff in interest rate-sensitive stocks may have been fueled by economic data released Friday that reignited investors' fears of the inevitability of a hike in short-term interest rates.
"While we are still positive on the investment merits of the group, the indecisiveness on the interest rates was enough of a psychological negative to (cause) a selloff in the stocks," Mr. Barkocy said.
The Federal Open Market Committee released its July minutes Friday after the market closed. The document indicated to some observers that the Fed is likely to raise rates.
A higher-than-expected increase in durable goods sales, reported earlier Friday, also hurt bank stocks. Sales of durable goods rose 1.6% in July, while economists had expected a 0.7% increase.
Economist Scott Brown of Raymond James & Associates, St. Petersburg, Fla., said Republican presidential candidate Robert Dole's recent gains in the polls also tweaked the market.
"The bond market had written off Dole," said Mr. Brown. "After he said he was giving a 15% tax cut, there was a fear that this would lead to a runaway deficit."
Analyst Thomas Hanley said the Fed is bound to raise rates. "There are fears that the economy is growing at an unacceptable rate, which will ultimately put pressure on the Fed," said Mr. Hanley. "At some point in time after the election they will raise short interest rates about 50 points.
Elsewhere in the market, shares of Olympic Financial Ltd.. Minneapolis, surged after the automobile finance specialist fired its chairman and hired Donaldson, Lufkin & Jenrette Inc. to review a possible sale.
Shares rose $6.75 to $23.875 - a 35.5% gain - on five times average daily volume. The company had reached 52-week high of $30.625 last October. It then fell to a 52-week low of $12.50 in February.
Olympic said its board ousted chairman Jeffrey C. Mack, who also was president and chief executive, "due to philosophical differences." He was replaced by Warren Kantor, a director.
