Bank stocks soared Tuesday after the Federal Reserve ended its widely awaited meeting without raising rates.
The Standard & Poor's bank index, which had been off more than 1% in early trading, closed at 518.28, up 2.18% for the day. The Dow Jones industrial average rose 1.03%. The Nasdaq bank index, which includes smaller banks and thrifts, rose 0.32%.
Among the big gainers were Chase Manhattan Corp., up $3.875 to $96.50, Citicorp, up $3.875 to $119.875, and Bankers Trust New York Corp., up $2.125 to $83.375.
Many observers have been predicting the Fed would act a second time this year to stave off inflation. In late March, the Federal Reserve raised the federal funds rate, charged on overnight loans between banks, by 25 basis points for the first time in more than two years, a move that caused interest-sensitive bank stocks to plummet.
After the board ended its meeting without taking action, prognosticators quickly turned their attention to the possibility of another rate hike later in the year.
Some said banks could face some short term setbacks between now and July. "We could see a flurry of selloffs unless there is benign economic indicators that would mitigate the Fed taking action," said bank analyst Frank Barkocy of Josephthal Lyon & Ross Inc.
But Mr. Barkocy that he believes banks stocks will continue to be boosted by strong earnings.
Bank analyst Robert Albertson of Goldman Sachs & Co. agreed that the banks' earnings prospects are good.
He said he was "disappointed" that the Fed did not raise interest rates on Tuesday. "The only way investors will learn that rising interest rates will not affect banks is if we have rising interest and banks continue to deliver double digit revenues unfazed," Mr. Albertson said.
Economist Thomas Carpenter of ASB Capital Management said he doubts that the Fed will raise rates at its July meeting.
"By that time the higher growth numbers won't be there. Second quarter growth won't be more than 2% and inflation" will still be low, he said.
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In other market news, three senior bank analysts who worked with veteran bank analyst Thomas H. Hanley at UBS Securities Inc. have left the firm.
Phillip Carter, Edward Narjarian and Mark Morgan, who followed Mr. Hanley from CS First Boston, have all left UBS in just the last six weeks.
Mr. Hanley said all three analysts "left on good terms" with him, and that the departures will not affect the amount of bank research that he puts out weekly.
Mr. Narjarian went to Wheat First Butcher Singer, Richmond, Va. to take the senior banking analyst post vacated recently by Merrill Ross, who now works for Friedman Billings Ramsey. Mr. Morgan is expected to start at Dain Bosworth in Minneapolis soon. Mr. Carter is still seeking a post, sources said.
"I have always given a young people a break but you always know that they will spread their wings," Mr. Hanley said.
Mr. Hanley said that he had been hiring analysts because he "had a feeling" that Mssrs. Carter, Narjarian and Morgan were looking for opportunities elsewhere. So far he has filled two of the positions. UBS still has two bank analysts positions open.
