The market selloff on Friday prompted some market watchers to conclude that bank stocks have become too hot to handle.
Banks have consistently led the market in recent weeks, suffering larger declines or gains. That has made them too unpredictable for investors, who generally do not like surprises.
On Friday "while the market was doing terribly, banks were doing worse," said Kevin Timmons, equities analyst at First Albany Corp. The Dow Jones industrial average sank only 0.90%, thanks to a rebound late in the day, but the S&P Bank index was off 2.39%.
Investors bailed out because of economic fears about Latin America and Russia, which could sting banks, and in reaction to the U.S. attacks in Afghanistan and Sudan.
The seesaw performance of bank stocks has left even hedge fund managers uncertain whether to cover their short positions or bet that prices will continue to fall.
As for mainstream investors, "it has become very hard to tell people to go out and buy bank stocks to make any short-term money," said Richard Bove, a financial company analyst at Raymond James & Associates.
Bank stocks, he said, have become mired in concerns about domestic and global economies and are no longer standing on their own merits.
This appears to be a new and growing sentiment as investors back away from financial institutions and move into Treasuries, money market funds, or industries they feel will have a quicker return.
Until recent months, bank and thrift stocks showed more momentum that other categories and were quick to bounce back after a broad market decline.
Just a year ago "you could swing a dead cat and hit a good bank stock," said one stung investor.
But Friday the Nasdaq bank index was off 2.42%, while the S&P 500 dropped only 0.95%.
The Dow index lost 100 points in the first minutes of trading, then spent several hours in the negative-250 range. Afternoon buying shaved some of the loss, but the Dow ultimately closed off 77.76, at 8,533.65.
Bankers Trust Corp. shares dropped $4.9375, to $96.3125; Citicorp $4.5625, to $134.50; J.P. Morgan $3.4375, to $119.375; and Wells Fargo & Co. $15.875, to $313.5625.
That capped four straight days of losses for equities and growing sentiment that overall market conditions remained too dicey.
The volatility drove Mr. Bove on Friday to reluctantly downgrade to "accumulate" from "buy" First Union Corp. and NationsBank Corp., "the country's two best banking companies."
Even traditionally bullish analysts have shown signs of pulling back. The group includes Michael Mayo at Credit Suisse First Boston, who downgraded a half-dozen large banks last month, in advance of the large dips.
Though reiterating a "buy" for Chase Manhattan Corp. last week, Mr. Mayo declined to restore it to the "strong buy" status the shares held earlier in the year.
"It may be time to sit out a bit and wait for things to blow over," said Eric Rothmann, a banking analyst with Stephens Inc.
He and other analysts said banks remain solid longer-term investments, but recent market moves feed a more skittish sentiment.
"Every day you come in, you just don't know what's going to happen," said Susan Flischel, a portfolio manager for Countrywide Industries Equity Fund.
"You don't even see the value people," said one bank stock trader, referring to investors who buy into high-quality companies when shares are at their lows.
The fact that some bank shares are off more than 30% from their summer highs may make investing irresistible, some said.
Ms. Flischel's strategy is to "look closely and be very, very selective" in the days ahead.
Mr. Timmons of First Albany Corp. also counseled caution. "When a market is moving like this one," he said, "you want to be careful not to get in the front of it."