Bank stocks dragged down the broader markets Monday after Rochdale Securities analyst Richard Bove said the sector would likely experience a retreat from recent rallies.
The KBW Bank fell 0.55%, the Dow Jones industrial average fell 0.5% and the Standard & Poor's 500 fell 0.81%.
Bove wrote in a note late Sunday that the markets have not reacted rationally toward bank stocks at any time within the past year — whether it was "mass hysteria" last fall, or the more recent mood of "rampant euphoria."
"It may take years for bank earnings to justify the current bank stock prices," Bove wrote. "The good news is that they will do this. The bad news is that it will take to 2011 for this to happen. At that time, the stocks may move sharply higher driven by solid fundamentals."
After reviewing the industry's second-quarter results in light of data from the Federal Deposit Insurance Corp., Bove said the sector has severe problems that prevent earnings from rising for at least a year. However, the industry's solid liquidity and capital base will serve as the foundation for significant earnings improvement from 2011 to 2015.
"Long-term investors are advised to keep their positions because they are likely to be rewarded," he wrote. "Nearer-term investors might consider the fact that a reaction to the recent move up in the stocks may develop."
Decliners included Bank of America Corp., 2.2%, Citigroup Inc., 4.4%, PNC Financial Services Group Inc., 0.6%, SunTrust Banks Inc., 1.3%, Regions Financial Corp., 1.8%, and Zions Bancorp., 2.4%
Gainers included JPMorgan Chase & Co., 1.3%; Wells Fargo & Co., 0.8%; U.S. Bancorp, 0.9%; Bank of New York Mellon Corp.; 2.4%, Capital One Financial Corp.; 1.5%, M&T Bank Corp.; 0.2% Fifth Third Bancorp, 1.1%; and Cullen/Frost Bankers Inc., 0.3%.