Bank stocks ended Friday on a slightly higher note, managing slight gains after a week of being dragged down by investors' fears about interest rates.
The S&P bank index gained 0.58% to 478.57, while the Nasdaq index of small bank stocks inched up 0.24% to 1,352.7. Meanwhile, the Dow Jones industrial average gained 0.75% to 6,526.07
The latest anxieties in the market were caused by the March employment survey, released Friday. While not universally strong, Wall Street found traces of inflation in the report.
"The market is focusing on wage inflation, while employment is not growing all that much," said banking analyst Moshe A. Orenbuch of Sanford C. Bernstein & Co. "Although the market has tended to emphasize the wage part of the report, it's not an overwhelming indication of further rate hikes."
Hugh Johnson, chief investment officer at First Albany Corp., agreed. "I wouldn't say that the economy is accelerating, but it seems too strong.
"We have not seen any good sign that things are slowing," he noted. "In fact the only possible thing to hang your hat on is the declining stock market."
Another analyst, Brian Eisenbarth of Collins & Co., San Francisco, said a robust economy is both good and bad for banks.
"On the one hand, a stronger economy hurts the banks because the bond market has difficulty," he said. "But on the other hand a strong economy promotes lending and commerce that banks benefit from."
Most observers are hopeful that as banks begin releasing first-quarter earnings reports this week, the selling will ease somewhat.
Market strategist Peter Canelo of Dean Witter Reynolds Inc. said healthy earnings would support the stocks that have been battered by interest rate fears, and predicted investors would gradually return to the financials.
The most positive reaction came from analyst Katrina Blecher of Gruntal & Co., who on Friday upgraded Norwest, Banc One, and Bank of New York to "outperform"-her second-highest rating-from "long-term outperform."
"Considering the falloff they've had, and that a rise in rates usually improves net interest margins," the stocks should benefit, Ms. Blecher said. She added that she's looking for good first-quarter earnings reports.
Still, a big shift in ownership is under way, one analyst noted. "Bank stocks had been in the hands of momentum investors. They're still getting out, and I don't expect the stocks to outperform the market," said Steve Laffey, director of research at Morgan Keegan & Co., Memphis.
"But hopefully this is just a hiccup," Mr. Laffey added.
