The financial sector was still looking battered Thursday after a week of heavy losses on the back of unfriendly economic data.
Waning consumer confidence coupled with rising consumer and producer price indexes have sent shock waves through the markets and hammered financial stocks all week. By Wednesday, the American Banker index of 225 banks had tallied losses of 6.79% in four trading days, and its index of the top 50 banks was down 5.66%. And on Thursday bank stocks were in a hole once more, despite a midsession rebound in an absence of negative data and on speculation about another interest rate cut before the March 20 meeting of the Federal Open Market Committee.
This week was the worst since October, said Adam Lewis, a trader at Keefe, Bruyette & Woods. He added investors are counting too much on a bailout from the Fed they need a rate cut like junkies need a fix.
Mr. Lewis said he expects stocks to remain sensitive to economic data for the next couple of weeks.
On Thursday the American Banker 225-bank index lost 0.9% and its top-50 index 0.15%. The Nasdaq composite, falling to its lowest level in two years during the day, closed down 1.07%, and the Standard & Poors 500 index fell 0.2%.
Names like Citigroup, which should have provided a save haven for jittery investors, have been hit hard in recent weeks, Mr. Lewis observed. Citi has lost 13.7% since Feb. 5. And on Thursday, the banking company traded as low as $46.66 but ended the day up 30 cents, or 0.62%, at $48.60. J.P. Morgan Chase gained 95 cents, or 2.01%, to $48.30.
And the future could be even bleaker for bank stocks.
Susan Roth, an analyst at Credit Suisse First Boston, issued a research report Thursday noting that increasing competition for deposits could offset future interest rate decreases.
Near term, we expect our banks to benefit from the drop in wholesale funding costs and the steepening of the yield curve, she wrote. Over the intermediate term, we do, however, expect net interest margin compression to reassert itself as the prevailing trend.
But bank stocks were not alone in taking punishment this week as investors took money out of big brokerage names.
The market was very hot, and investors decided to take some money off the table, said Dean Eberling, another analyst at Keefe, Bruyette. Negative economic dynamics are eating into the earnings of investment banks, he said, and investors might be concerned that a rebound is not as close as some might have expected.
Merger-and-acquisition volume is particularly slow now, Mr. Eberling wrote in a note on Thursday. While we never expected the level of activity to match the height achieved over the past two years, the current weakness is considerable, he wrote.
However, Lehman Brothers Holding managed to gain 3.19%, to $71.10, and Merrill Lynch & Co. gained 4.58%, to $62.10.