Despite a retreat on Friday, bank stocks are expected to resume their fast climb this week.
"I think bank stocks will move up 10% in the next three weeks," said Robert A. Bonelli, executive director of the Enst Financial Group., which invests in banks.
Disappointing news that the economy pined a scant 13,000 jobs - rather than the 130,000 consensus forecast from economists - sparked a selloff in the broader market.
Vote of Confidence
Bank stocks did not fall as sharply as the overall market. Mr. Bonelli and other bullish money managers took the muted reaction as a sign of renewed support for the sector.
Only three major banks lost $1 or more a share: Wells Fargo & Co., which fell $1.875 to $108.25; Bankers Trust New York Co., which dropped $1.125 to $73.875; and First Union Corp., which gave up $1 to $46.75.
Some of the, selling of bank shares represented profit taking arrests said. Before Friday, for example, Bankers Trust had been up 5% lost week. Society Corp., which lost 75 cents to $34.875, had gained 5.5% from Monday through Thursday.
A Good Week
Even with the downturn, bank stocks soared last week. As of 2 p.m. Friday, the American Banker index had Pined 1.9%, versus a top of 0.2% in the Dow Jones industrial average.
Meridian Bancorp led the gainers. Shares of the Reading, Pa., bank jumped 8.4%, partly on rumors that it was going to receive a takeover offer.
CoreStates Financial Corp., Philadelphia, has been frequently mentioned as a partner for Meridian.
Spokesman for Meridian and CoreStates declined to comment on the merger rumors.
Other gainers were National City Corp., which rose 37.5 cents Friday, to $52.375, a 5.2% jump for the week. First Fidelity Bancorp.'s shares rose 4.5%.
Last week's surge boosted the month-long gain in the American Banker index to near 5%. In contrast, the Dow Jones industrials lost ground in the period.
Since early June, bank stocks have gained back about half the ground they lost in the recent selloff, which started in mid-April and ended in early June. The weak jobs growth shown in June should aid the bank stock rally, money managers said. The lack of employment expansion is further indication that the economy is in a weak recovery.
That picture should quiet any remaining fears about rising inflation and a move to tighten credit by the Federal Reserve. Investors' worries about rising rates ignited the recent selloff in bank shares.
"The banks should perform best in a slow-growth economy, which is what we have," said Dennis Shea, an analyst with Morgan Stanley & Co.
Mr. Shea said he expects bank stocks to rise 20% this year. At midyear, they are nearly halfway there. As of July 1, the American Banker index was up 8.25% for the year.
Mr. Bonelli and other bullish money managers said they sense a warming trend in investor sentiment toward bank shares as the release of second-quarter earnings draws near and inflation fears subside.
"How can you ignore an industry that's going to have record earnings," said Sam A. Marchese, director of Sife Trust Fund, Walnut Creek, Calif.
Analysts predicted strong year-over year growth in bank earnings. "We will have very good earnings for the remainder of this year, even without loan growth," said Mr. Shea of Morgan Sanley.
By contrast, major corporations expect second-quarter profits to be disappointing.