Money managers have identified bank and financial stocks as a safe haven in what could be a turbulent market this year.
Bank stocks, especially those of regional institutions, are likely to outperform the broader indexes, a panel of powerful investors said at a seminar sponsored by the New York Society of Security Analysts.
The advisers gathered last week, when bank shares were getting hammered because of worries about the interest rate environment and banks' exposure to Asian markets. On Friday the rout continued, with smaller banks taking especially hard knocks.
"Sometime this year we may witness a bear market, if not in the leading blue-chip averages, at least in some sectors," said Ralph J. Acampora, director of technical research at Prudential Securities.
"In taking a defensive approach, you should be looking at financial institutions," said Melissa R. Brown, director of quantitative research at Prudential Securities.
Most predicted the market will finish 1998 on an upswing, aided by inflows to mutual funds and low interest rates and inflation. But "in the first half of 1998 investors' tenacity will be tested," said Bernadette B. Murphy, managing director at Kimelman & Baird.
Large banks are seen as being more vulnerable to volatility overseas, and analysts expect more upheaval. "It would almost be a surprise if we didn't see bigger surprises from the Asian sector," said Martin S. Fridson, director of global high-yield strategy at Merrill Lynch & Co.
But banking does have more appeal than defense, high-tech, and new issues, among others. Banks "are still viewed as attractive relative to their earnings" and other market sectors.
Indeed, "there are sectors, like financial services, that will produce solid, double-digit gains" in earnings, said Philip J. Orlando, chief investment officer with Value Line Asset Management.
The market watchers' confidence does not extend to the subprime lending sector, where writedowns and writeoffs were common in late 1997.
The market watchers also urged banks and other U.S. companies to remain ambitious and look for ways to profit from the overseas meltdown and new technologies.
"People are now shopping around the clock" through the Internet and other automated systems, said Esther Dyson, chairman of Edventure Holdings. "If you're not offering that service, you will be competing with someone who does." u