Bank stocks rode the roller coaster with stocks in general on Friday.
Stocks first surged on the latest news of a slowing economy, then sagged on apparent second-guessing by investors before getting a second wind.
In late trading, BankAmerica was up $1.125 to $72.12 and J.P. Morgan was up $1 to $81.62, while SunTrust Banks was off $1.25 to $74.25.
The American Banker index of the nation's 225 largest publicly held banks is up 6% this year, compared with a 7% advance for the Standard & Poor's 500 stock index and a 9.6% gain for the surging Dow Jones industrial average.
The latest bounce in the stocks came after the Commerce Department reported that the nation's economy grew at an anemic 0.9% annual rate in the fourth quarter.
The report confirmed fears of a weak Christmas season and reinforced investors' perceptions of a low growth, low inflation environment. That in turn ignited gains in the bond market, which spilled over into stocks.
However, a report of a higher-than-expected housing starts in January muddled the outlook, rattled investors, and dramatically took the air out of the market.
The recent volatility in the market has also been accompanied by rising short interest in stocks, as investors apparently hedge against the chance that the low-energy economy could fall into a recession.
Short interest in bank stocks traded on the New York and American stock exchanges rose 7.2% in the month ended Feb. 15. Overall short interest on the two exchanges rose 8.7% during the month. (See table page 31.)
The banks' total might have been higher if not for the 36% fall in the short position in shares of New York's Citicorp, which has completed the conversion of large blocks of preferred stock into common shares.
Short interest is the total number of shares of a company's stock sold short. Market players short a stock by selling borrowed shares on the prospect a stock will fall in value, to lock in arbitrage-related gains or as a hedging strategy.
In the case of Citicorp, short interest was high last year because some investors focused on common stock underlying "in-the-money" preferred stock - preferred issues trading in advance of conversion.
Citicorp announced last week that it had issued 58.9 million shares of common stock to holders of its series 12 and 13 convertible preferred shares, which were called in January. Citicorp now has no convertible securities outstanding.
Citicorp's short position in the period ended Feb. 15 dropped by over 3.7 million shares, to 6.6 million shares overall. Short interest in the stock was several times that level last year.
The gross domestic product report that initially drove Friday's market did not get much respect from one banking observer. "To summarize the new information in this report: None!" said David Orr, chief capital markets economist for First Union Corp., Charlotte, N.C.
The report was delayed four weeks by winter weather and the partial shutdown of the federal government. "The data is so dated that GDP should stand for Gone, Done, Past," Mr. Orr said.
