Bank stocks fell Wednesday as a two-day updraft gave way to profit-taking and renewed interest rate jitters.
The American Banker index of 50 largest banks was off 2.16%, and its index of 225 banks fell 2.28%. The Dow Jones industrial average and the Nasdaq Composite index also were down: The Dow fell 0.86%, and Nasdaq 2.30%.
Banks had been recovering from a low ebb this year but led the market downward when the Dow fell a record 616.23 points - or 5.6% - on Friday. The American Banker index remains 19.77% above its nadir of 435.36.
"We are in an up trend, but there is profit-taking whenever we have a strong rally in the group," said Katrina Blecher, an analyst at Brown Brothers Harriman.
Bank stocks gained slightly on Monday and rallied on Tuesday.
"Interest rate jitters never went away," said Scott Brown, chief economist at Raymond James & Associates, St. Petersburg, Fla. They flared Wednesday on a Commerce Department report that the U.S. trade deficit widened to a record in February and a surge in oil prices.
Earnings reports also some investors jittery. Though bank earnings for the first quarter were mostly solid, margin pressure continued to be a trouble spot for many banks, said Gerald Cronin, an analyst at McDonald Investments.
"Credit quality and loan growth held up pretty well, but the numbers for mortgage banking have been brutal," Mr. Cronin said. "The question is, How much more margin pressure should we expect? The Federal Reserve's bias toward raising rates and the inversion of the yield curve is too tough an environment for banks."
Banking companies that missed analysts' earnings targets or have disappointed analysts with the quality of their earnings because of higher interest rates include First Tennessee National Corp., Regions Financial Corp., Huntington Bancshares, and Marshall & Ilsley Corp.
Because many banks have relied heavily on venture capital to produce strong first-quarter earnings, some investors have become wary, Andrew Collins, a bank analyst at ING Barings said.
"There is a big question mark about how venture capital is going to impact earnings in the future," Mr. Collins said. But he added that "a lot of the banks that are trading off on capital market concerns" are becoming "great buying opportunities, particularly as we see strength in the overall markets."
Ms. Blecher of Brown, Brothers Harriman said she is optimistic despite what she describes as a "schizophrenic" market. "Good fundamentals, good earnings, and compelling valuations will keep the group in an upward trend despite these wild gyrations," she said.