Bank stocks emerged from the doldrums and outpaced other stocks in a strong market rally Monday as investors anticipated encouraging words from Federal Reserve chairman Alan Greenspan.
Mr. Greenspan is due to begin presenting his semiannual Humphrey-Hawkins review of business conditions to Congress today.
Wall Streeters will be looking for clues about future Fed policy. Stocks have recently been hurt by concerns that the central bank might raise interest rates if economic growth does not moderate.
"But the Fed is also well aware that the economy may slow down at some point, so Greenspan's message Tuesday is likely to be more assuring," said economist J. Scott Brown of Raymond James & Associates, St. Petersburg, Fla.
That may explain the unusually strong market ahead of the Fed chairman's remarks. Typically, investors stick to the sidelines until Mr. Greenspan's latest economic views have been analyzed.
The Fed chairman is also expected to talk to the Senate Banking Committee about the financial market reform.
In Monday's spirited market, the Standard & Poor's bank index rose 3.25%, outpacing the Dow Jones industrial average, which gained 2.28%. The S&P 500 rose 2.66% and the Nasdaq bank index 1.07%.
Some of the biggest gainers of the day included Chase Manhattan Corp., up $4.9375 to $81; State Street Corp., up $4.375 to $77.25, and Wachovia Corp., up $3.125 to $89.9375.
"Bank stocks were extremely oversold relative to technology stocks and it seems that interest is returning to the group," said bank analyst Frank J. Barkocy of Josephthal & Co.
"As long as there is no saber rattling or talk of irrational exuberance, that interest will likely continue as portfolio managers see more value plays in the group," he said.
Investors are also confident about Mr. Greenspan's position on financial market reform.
"Greenspan is a strong supporter of financial market reform," said Mr. Brown, referring to potential legislation that could break down the walls between banks and other financial companies such as insurance and securities firms.
Still, some market experts believe the surge in bank stocks occurred purely because of low valuations.
"Some technology stocks have deflated and perhaps some of that money is flowing into bank stocks," said bank analyst Nancy Bush of Ryan Beck & Co., Livingston, N.J. "The question is: Are portfolio managers parking their money into banks stocks for now, or is there a more permanent interest in the group?"
Terry Maltese, president of Sandler O'Neil Asset Management, also said the bank stock gains are the result of low valuations.
"Bank and thrifts stocks have become so cheap that people are starting to pay attention to them," he asserted.
"You don't need a catalyst such as a major news event to cause bank stocks to go up," Mr. Maltese said. "We have a word for when the fundamentals of a company are good and the stocks are getting cheaper. It's called a buying opportunity."