The deep selloff of bank stocks is over for now, but no one is expecting a sharp rebound soon, said money managers.
"It will be two to three weeks before banks retrace their losses," said David Sloan, a portfolio manager with SIFE Trust Fund, in Walnut Creek, Calif. "Banks are taking a back seat to the rest of the market now."
Indeed, the Dow Jones rose 13.14 on Friday to 3,649.3.
Bank stocks were mixed Friday as they were the two previous days. The prices moved fractionally in most cases. Only Citicorp shares posted a sizable loss, dropping $1.125 to $36.625 in late trading Friday.
The three days of relative stability is a change from the four-day swan dive bank shares took beginning Oct. 14.
The dive came despite generally strong earnings reports and was prolonged by the news that J.P. Morgan's lead bank cut its prime half a point to 5.5%.
In the five trading days that ended last Thursday, the American Banker index of 225 bank stocks plunged 4.16% while the Dow Jones industrials gained 0.4%.
The recent selloff wasn't unexpected. A similar selloff has happened in each of the past five quarters as investors took profits in a sector that they believed had reported peak profits.
"That is recurring quarterly situation," said Richard Holt, a vice president with Pitcairn Trust Co. in Jenkintown, Pa. "People are unwilling to hold stocks that could hurt them next quarter. The prime rate cut exacerbated that situation."
Money managers said they took profits from the sale of bank stocks and poured them into telecommunication and pharmaceutical stocks.
Analysts liken this month's selloff to the big one that started on April 14 and lasted nearly two months, pulling down the share price of the average bank by 18%.
That selloff followed earnings, but was exacerbated by the fear that short-term interest rates might rise, crimping bank profit margins. This selloff was prolonged by worries that other banks may cut their prime lending rates and squeeze their profit margins.
Signs of Weakening
"As soon as investors see that there are no more cuts, money will come back into the banks," said Mr. Sloan.
Since the April selloff, though, there have been signs that the bull market is running out of gas, opening the question of just how much money will gravitate back to bank stocks.
In 1991 and 1992, when banks stocks were enjoying a raging bull of a market, only a handful of banks underperformed the broad market.
This Year, said Ronald Mandle, an analyst with Sanford C. Bernstein, a third of the stocks he follows are down for the year and a slightly larger number have underperformed.
"For the past three years, the rising tide carried all boats," said Mr. Mandle. "Now each boat has to navigate under its own power.
|Running out of Steam'
Some analysts have declared that the bull market is over and expect bank stocks as a group to perform in line with the market.
"Clearly, banks stocks are running out of steam," said Dennis Shea, an analyst with Morgan Stanley & Co. "It's not a leadership group any more. There aren't the same forces driving the positive earnings surprises we saw in the past."
The market still responds to those surprises. Last Thursday, for example, BayBanks reported much higher than expected earnings.
The consensus estimate on Wall Street was 77 cents share. The bank's third-quarter earnings were 95 cents per share - probably the biggest earnings surprise of the quarter. The stock rose $2.50, to $48, in two days.
Challenge for Stock Pickers
But some money managers say there are still profits to be made.
"Some people can say we are in a bear market for banks stocks, but if I can pick the right bank and make a positive return, I don't care how the market is categorized," said Mr. Holt.