Bank stocks moved between gains and losses during much of Wednesday's session but ultimately broke a two-day losing streak, despite festering concerns about mortgage companies and credit losses.
Falling oil prices — and the resulting easing of inflation concerns — have boosted financials at various points this month. On Wednesday the Energy Information Administration reported that crude oil inventories jumped by 9.4 million barrels last week. That increase, the biggest in seven years, signaled to investors that healthy supplies could help keep oil prices well below their record levels of early last month.
The news motivated bargain hunters. The KBW Bank Index rose 2.3% after losing 3.4% Tuesday and 3.9% Monday.
"I've been doing this a long time, and I can never recall when we've had such swings in bank stocks," Andrew Marquardt, an analyst at Fox-Pitt Kelton Cochran Caronia Waller, said in an interview Wednesday.
Notable gainers included Bank of America Corp., which rose 4.3%; Regions Financial Corp., which rose 3.1%; German American Bancorp Inc. of Jasper, Ind., which rose 11.7%; and Beverly Hills Bancorp Inc., which rose 17.3%.
The broader markets also finished in the black, boosted in part by Hewlett-Packard Co.'s 11% jump in fiscal third-quarter earnings, along with its rosy outlook for this quarter. The Dow Jones industrial average and the Standard & Poor's 500 each gained 0.6%.
The gains were modest because of mounting worries that steep loan losses at Fannie Mae and Freddie Mac will require a federal bailout. Fannie's shares plunged 27%, and Freddie shed 22%.
"Fannie and Freddie, their problems are only getting worse. Their capital cushions are deteriorating," Sung Won Sohn, an economist at California State University, Los Angeles, said in an interview Wednesday. "I can't believe there will be any other solution than a government bailout, and that solution would call into question the credit rating of the government itself. That's hurting investor confidence."
The Mortgage Bankers Association said Wednesday that mortgage application volume fell last week to its lowest level in more than seven years. The trade group's market composite index declined 1.5% from a week earlier and 34% from a year earlier, to 419.3.
The weekly index is volatile, but the MBA blamed the drop on a clear deceleration in both home purchases and a decline in refinancing applications. Interest rates on home loans have ticked up over the past month.
Despite Wednesday's stock rebound, analysts cautioned that, for every round of positive trading, bank stocks seem to get blasted with a heavy dose of grim credit or economic news. Until the mortgage mess clears and credit losses taper off, most analysts expect trading of financials to remain volatile.
"There is still a lot of risk out there in terms of credit," Mr. Marquardt said.