Bank stocks have been on a roller coaster ride for the past two days as the market has grappled with ambiguous economic data.
Bank stocks, which had generally declined for several weeks because of favorable economic news, did an about-face on Wednesday afternoon, in reaction to a stronger-than-expected auction of 10-year government notes.
The yield on the benchmark 30-year Treasury bond slipped back below 7%, indicating a more favorable interest rate for banks.
On Thursday, the S&P bank index continued its upswing in early trading, but then dipped into negative territory, as investors reacted to bullish reports on sales at retail chain stores and jobless claims. The 30-year Treasury rate climbed to 7.02% by 3 p.m. The bank index closed at 352.18, down 0.09%. The S&P 500 rose 0.10%, closing at 645.44.
BankAmerica was among gainers, rising 75 cents to close at $72.875.
Banks that lost ground included Boatmen's Bancshares, down 50 cents, to $39.375, and Fleet Financial Group, down 50 cents, to close at $41.50.
The "economy is in a good area for bank stocks" because it is growing between 1% and 3.5%, said analyst Ron Mandle of Sanford C. Bernstein & Co.
Mr. Mandle said faster growth would be good for bank earnings, but would depress bank stocks because it would raise fears of higher interest rates. Slower growth would hurt the stocks because it would affect the capability of banks to make money.
Scott Brown, an economist with Raymond James & Associates in St. Petersburg, Fla., said he "expects a general uptrend in the broader market," but cautioned that inflationary fears still remain.
"If the (economic) numbers seem more than expected, people will talk about the Fed tightening rates again," he said.
Mr. Brown said the possibility of an interest rate increase by the Federal Reserve is slim because "there is no real indication that the economy is growing too quickly."
Mr. Brown said, however, a tightening labor market and acceleration in wages could stir inflation fears.
In other news, Lehman Brothers Inc. upgraded First Chicago NBD Corp. and Barnett Banks Inc. First Chicago's shares remained unchanged, closing at $40.375. Barnett's shares rose 62.5 cents, to $62.375.
Analyst Michael L. Mayo upgraded both banks to "strong buy" from "buy."
Mr. Mayo said he had "gained confidence" at a recent meeting with the bank's management that First Chicago would make greater expense savings and excess capital will be deployed. He raised his estimate of 1996 earnings to $4.90 a share from $4.60.
Mr. Mayo said he raised his rating on Barnett Banks because its efficiency ratio has improved. His 1996 and 1997 earnings estimates on Barnett remain unchanged at $5.70 and $6.30.
Separately, Keefe, Bruyette & Woods Inc. upgraded the stock of TCF Financial Corp., Norwest Corp., and Leader Financial Corp.
TCF Financial stayed unchanged, closing at $34. Norwest closed at $35 up 12.5 cents, and Leader Financial closed at $44.375, up 37.5 cents.
The firm also downgraded Republic Bancorp, First Bank System, and Comerica Inc. Republic's shares closed at $11.375, down 12.5 cents; First Bank's shares closed at $59.375, down 50 cents; Comerica closed at $41.875, down 12.5 cents.
Keefe, which cited price for all of its rating changes, also lowered its rating on Advanta Corp. Advanta's class A shares closed at $55.25, up 50 cents, while its class B shares closed at $50.50, up 75 cents.