Bank stocks lost steam Friday as interest rate jitters, the approach of earnings reporting season, and a return by investors to technology companies all contributed to weakness in the financial sector.
Traders said some of the downdraft in bank stocks was the result of renewed interest rate jitters working their way back into the stocks after monthly data showed the labor market remains tight.
According to the Labor Department, payrolls for March rose a higher-than-expected 416,000 jobs, while average hourly earnings rose a higher-than-expected 0.4%. The unemployment rate was unchanged, at 4.1%. The data suggest that the economy continues to boom and the Federal Reserve remains likely to raise interest rates again at its May 16 meeting.
Even so, Scott Brown, chief economist at Raymond James & Associates of St. Petersburg, Fla., discounted the importance of the report and said special one-time events such as the return of 15,000 strikers to work at Boeing Co. and the addition of 117,000 temporary workers at the Census Bureau contributed to the figures.
Analysts also said there was a degree of caution in the market before the issuing of first-quarter bank earnings reports. That caution, coupled with the stability in tech stocks after a slide early in the week, was enough to send some "hot money" momentum investors to tech stocks and out of financials.
"We are having a bit of a blow off today in anticipation of earnings, which should be decent," said Eric Rothmann, an analyst at First Security Van Kasper. "Technology is back in vogue, at least for today."
The Nasdaq Composite index, which fell steeply in just two days last week, rose 4.19%, to 4,446.30. The American Banker index of 50 largest banks fell 1.98% and the index of 225 banks fell 1.64%.
The biggest decliners of the day included J.P. Morgan & Co., which fell $4.75, or 3.53%, to $129.875; Wachovia dropped $2.875, or 4.19%, to $65.6875; and State Street Corp. was down $3.1875, or 3.29%, to $93.75.
Despite the selloff, many analysts said larger banks are likely to produce strong earnings propelled by capital markets gains, though expectations there have come down because of the market tumult last week. Regional banks, however, may continue their struggle with margin pressure because of rising interest rates, slower deposit growth, and a decrease in loan underwriting.
Last week Merrill Lynch & Co. said it expected median year-to-year earnings-per-share growth of 13.5% for the money-center banks, compared with 8% for regional banks. Analyst Judah Kraushaar said he also expects "meaningful positive first-quarter surprises" from Citigroup Inc. and FleetBoston Financial Corp.
In other news, shares of Wilmington, Del.-based MBNA Corp., the third-largest credit card issuer rose 21% during Friday trading, a spike that resulted partly from what appeared to be a stock exchange trading glitch. Shares of MBNA closed sharply lower on Thursday on a small trade that was quoted at an out-of-line price of $22 at 4:15 p.m. on the New York Stock Exchange even though the stock had traded at $26 near the 4 p.m. close.
In a press release, MBNA said it did not believe that the trade, which it called "mysterious," was valid. It took the added step of issuing an earnings comment in which it said it expected first-quarter profits to rise 27%, helped by acquisitions and customer defections from the troubled Bank One Corp., which owns First USA.