Bank stocks and the overall markets rallied Monday thanks to a falling dollar and a report that home sales in October were higher than expected.
The KBW Bank Index closed at 44.53, up 1.97%.
William B. Rutherford, president of Rutherford Investment Management LLC in Portland, Ore., said banks stocks benefited from investor optimism that the housing market may be bottoming out. A report from the National Association of Realtors said sales of existing homes rose 10.1% in October from the previous month, their fastest pace in two years, as people sought to close deals before the federal tax credit expires.
Rutherford said financial stocks tend to be a "proxy" for how investors feel about the economy in general.
"The banks look strong today," he said. "The economy is looking better. So I would say that's what's moving that — and that of course would be related to the housing sales, which were quite strong. Although they were affected by the government stimulus program, it is a good sign."
The dollar's decline continued Monday after a Federal Reserve official said last week that interest rates could stay low until 2012. Stocks tend to trade inversely to the dollar, as interest rates fall when the dollar declines. That means investors can borrow cheaply and buy assets like stocks and commodities.
The Dow Jones industrial average rose 1.29% and the Standard & Poor's 500 rose 1.36%.
Large and regional banks had a good day.
JPMorgan Chase & Co. rose 1.93%, Wells Fargo & Co. rose 0.72%, Bank of America Corp. rose 1.24% and Citigroup Inc. rose 8 cents, to $4.28.
PNC Financial Services Group Inc. rose 3.21%; U.S. Bancorp rose 1.12%; SunTrust Banks Inc. rose 5.04%; Fifth Third Bancorp rose 2.01% and BB&T Corp. rose 1.91%.
