Bank stocks rallied Thursday on news that Chase Manhattan Corp. plans to report better-than-expected quarterly earnings as well as a wave of positive indicators about the economy.
The optimism lifted most bank stocks, particularly those of large banks, which have lagged other financial companies because of projected shortfalls and writeoffs for the fourth quarter.
"You are looking at a group that has underperformed for a while," said bank analyst Nancy A. Bush of Ryan Beck & Co., Livingston, N.J. "Chase's announcement says that the outlook is not all that bleak for bank stocks."
The Standard & Poor's bank index rose 4.85%, and the Dow Jones industrial average went up 0.97%. The Nasdaq gained 1.84% and the S&P 500, 1.55%.
Gainers included Chase $6.375, to $69.875; J.P. Morgan & Co. $2.5625, to $102.4375; and BankAmerica Corp. $4.325, to $60.25.
The news of Chase's strong fourth-quarter earnings expectations and the dramatic surge in its stock prompted several analysts to elevate their per- share estimates on the company.
Robert Albertson of Goldman, Sachs & Co. raised his quarterly estimate for Chase to $1.20, from $1.10; Ruchi Madan at PaineWebber Inc. raised her estimate to $1.20, from $1.14; and David S. Berry at Keefe, Bruyette & Woods Inc. raised his projection to $1.20 from, $1.05.
The rally also was driven by bullish comments made by Goldman Sachs' widely followed strategist, Abby Joseph Cohen, who has predicted that the Dow Jones industrial average would reach 9850 by the end of 1999.
Favorable economic data such as the narrower-than-expected trading deficit and the increase in jobs also fueled the buying Thursday.
But some market experts worry that the rally in bank stocks and the market in general is built on a poor foundation in the wake of the U.S. air strike against Iraq and the specter of impeachment for President Clinton.
Scott Edgar, director of research at SIFE Trust Fund, which has a position in Chase, said, "We are happy about the rally in Chase's stock, but we are also sitting here wondering why."
Three months ago the full-year 1998 consensus earnings estimate for Chase was $4.48 per share. That was subsequently reduced to $4.28, said Mr. Edgar, citing Zacks Investment Research. "Earnings estimates have now risen as high $4.40 as of Thursday morning," he said, "which means the stock is rallying on estimates that are still lower than what they were three months ago."
Another observer puzzled by the stock market's strength is Sung Won Sohn, chief economist at Wells Fargo & Co.
"We are too optimistic. We assume that the stock market can do no wrong regardless of what is happening," he said. "This optimism will come back to haunt us in 1999. Economic growth will slow, and there will be earnings disappointments.
"I would almost feel better if the market fell back because of the impeachment proceedings or the situation in Iraq," he said. "That would indicate there is some sense of concern or worry instead of this brimming enthusiasm, which is not justified by fundamentals."