Bank stocks in the United States and Europe are under pressure and may be signaling a coming chill in the economic climate.
On both sides of the Atlantic, banks have rebounded from their lows of last year, but they remain below their highs and have lagged other stocks.
"These stocks are losing upward momentum," said Edward Yardeni, chief economist at Deutsche Bank Securities, New York, who regards banks as barometers of business conditions and as stock market bellwethers.
"A healthy, vibrant banking industry, reflected in their stocks, is consistent with a good, strong economy," he said. "If the banks are limping along, it suggests things are a lot more tentative.
"It was good to see bank stocks recover from last summer," he added, "but the rally has not been all that inspiring."
In Europe, bank stocks have been mired in a trendless trading range- except in Germany, where bank issues have been notably weaker amid concerns about global loan exposures and slowing conditions domestically.
In the United States, the listless performance of banks in a robust economy suggests to Mr. Yardeni that the stock market is vulnerable.
"It says to me that the bull market right now is actually a narrow market," he said in an interview. "Any list of bear market indicators would include lackluster performance of banks."
Last week, stocks in general and banks stocks in particular swooned after Federal Reserve Chairman Alan Greenspan expressed concern that the robust economy might revive inflation. On Wall Street, that could mean higher interest rates.
"The market is feeling a lot of uncertainty about the pace of economic growth and a possibility of higher rates," said Sung Won Sohn, chief economist at Wells Fargo & Co. "For bank stocks, the worst possible scenario is that the economy slows down significantly while at the same time rates rise.
"On the other hand," he said, "if the economy slows down some on its own and rates don't have to go up, the climate could remain pretty good for bank stocks."
In Europe, the so-so performance of banks may portend a recession. Mr. Yardeni thinks one could begin this year. "The Asian contagion is spreading to Europe," he said last week in a report to clients.
He noted that in the fourth quarter, German economic growth declined for the first time in three years. Meanwhile, the British economy grew at its slowest pace in six years, and Italy is growing at half the pace of late 1997. France also is slowing.
Moreover, Mr. Yardeni said that banks, because of their web of relationships throughout the economy, are reflecting investors' concerns about the potential impact of year-2000 computer problems.