Last week investors had a choice: Was the downward revision in the government's estimate of first-quarter gross domestic product good or bad for banks?
If the revision meant that the Federal Reserve was less likely to raise interest rates, it would be good. If it meant the economy would slow, raising the specter of higher loan losses and less growth for banks, it would be bad.
Investors in bank stocks voted overwhelmingly that the news was bad, as evidenced by the 3% decline in the Standard & Poor's bank stock index. The S&P 500 index also declined sharply, but as usual banks fared worse.
Though banks have had good days as well as bad in recent weeks, the trend line is definitely down. The question many are asking is whether investor mentality toward banks is fundamentally bearish so that every piece of bad news will cause bank stocks to dive, or drop even when indicators are unclear.
And many investors, it seems, simply ignored the possibly positive interpretation of the GDP figures and remained focused on the Fed's signal two weeks earlier that it may raise interest rates if it becomes convinced inflation is a genuine threat.
"There's a lack of real news, so investors don't know which way to turn," said Jeffrey Warantz, equity strategist for Salomon Smith Barney. As a result, any bit of positive or negative news had a dramatic impact last week, sending stocks sharply lower or higher, he said. "Whenever there's even a little whisper, investors start running," Mr. Warantz said. "It's not taking much these days to push things around."
"The stock market today is showing people at their most suggestible," said Dr. Albert Ellis, president of the Albert Ellis Institute of Behavioural Psychology in New York.
"If everyone buys, they buy, and if everyone sells, they sell without thinking," Dr. Ellis said. "It's the desire to be part of the group." Until a concrete event occurs, the market will see more days of clustered buying and clustered selling.
Judah Kraushaar, a bank stock analyst for Merrill Lynch Global Securities, urged investors to "keep things in perspective."
The environment for bank stocks "remains reasonably good," he said, "and we reaffirm our selectively bullish stance."
"We acknowledge that investors might have undergone a bit of a psychological change in terms of a renewed focus on possibly higher interest rates and fears regarding a debilitating period of Fed tightening," he added.
Last week the market had both concrete news and chit-chat that set off big moves. A selloff erupted Monday in bank stocks after Credit Suisse First Boston put "sell" recommendations on several big-bank stocks.
"You saw the bears and the bulls square off against each other," said David Trone, banking analyst at Credit Suisse First Boston. "It created a sense of uncertainty."
Some analysts thought Credit Suisse's reasoning odd-certainly not justifying a selloff. The firm said some banks may have year-2000 computer problems because companies they deal with may not be adequately prepared for the millennium bug.
Tuesday, the market had concrete news when Charlotte, N.C.-based First Union Corp. announced its second downward revision this year of 1999 earnings estimates. First Union's stock plummeted on the news, but so did the stocks of most other big banking companies, whether or not their fundamentals warranted it.
Bank stocks plummeted again Thursday, presumably on the inflation, or noninflation, reports but rose again Friday on no discernible news.
The Standard & Poor's bank index added 2.07% for the day, and the Dow Jones industrial average 0.89%. The Nasdaq bank index was up 1.73% and the S&P 500 1.59%.