Another Good Day For Bank Stocks amid Optimism on Inflation

Bank stocks, still heady from the previous day's gains, continued to rise Wednesday.

The backdrop of low inflation and continued economic growth spurred a bond market rally Tuesday that propelled stocks upward in stirring fashion. Wednesday action was less dramatic for stocks generally, but banks continued to gain.

"Interest rate fears are waning, and (bank) stocks are very comfortable in that environment," said bank stock trader Andrew Vissichio of UBS Securities in New York.

Jay Suskind, head trader at Ryan Beck & Co., West Orange, N.J., called the present conditions "very bullish for larger banks."

Mr. Suskind, whose firm specializes in smaller-capitalization bank stocks, said Nasdaq banks were strong as well. And he noted that banks in New England have been big gainers over the past few days. People's Bank of Bridgeport, Conn. gained 50 cents, to $31.75. The Nasdaq bank index rose 13.1 points, or 0.71%, to 1,849.9.

Citicorp was a big gainer, up $3.1875, to $134.625, though few had any explanations. "I think its still cheap relative to the market," said Ronald I. Mandle, who maintains a "buy" rating on the stock.

Chase Manhattan Corp., another big gainer, rose $2.06, to $117.625. The S&P bank index gained 2.87 points, or 0.48%, to 603.48.

Though the mood was buoyant, some had cautionary words. One trader at a major New York brokerage said bank stocks look "expensive as a group."

And Investment Research Institute of Cincinnati, a company that advises individual and institutional investors, said in a fax newsletter that the company is "officially changing our outlook on the stock market from "neutral" to "bearish."

Gauging the market through sentiment and technical indicators such as the ratio between puts, a bet the market will fall, and calls, a bet the market will rise, Price Headley, director of research at the firm, said the Dow Jones industrial average could fall to 7,250. It ended trading Wednesday down 9.48 points to 7,886.44.

In light of the high volatility of the stock market over the past several weeks, Mr. Headley said, "sentiment has been unusually complacent." Rather than becoming "increasingly worried as the market goes down, investors are viewing it as a buying activity," he said. "That's not what bottoms are made of.

"We still need to hit what I call the fear climax, where most investors are very worried about the market's future prospects," he added.

"It's unusual for us to be bearish," said Mr. Headley. "I view it as short term." Mr. Headley expects the correction in the next 30 days, after which the market should rebound.

"They might as well say they believe there'll be a correction in the next 20 years. They have no clue when it will happen," said a portfolio manager for one of the largest mutual fund companies in the Northeast. "For the long-term shareholder, they should care less. Even a 15% correction shouldn't matter."

The financial services fund manager said a "consistent long-term strategy" for investing should supersede any efforts to "time the market."

He said the outlook for financial services stocks "remains very positive." Indeed, he said fundamentals and the profitability of the financial services firms are in good shape, and "valuations should remain elevated due to industry consolidation."

"As long as mergers and acquisitions are being announced every week, investors are not going to sell stock in those companies," he said. "And consolidation lasts for years."

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