Bank stocks lost altitude on Tuesday as investors took profits after a four-day surge in share prices.
The Standard & Poor's Bank Index gained 2.9% in the four trading days ending Monday, while the Dow Jones industrial average gained 01.1%.
But on Tuesday, the Standard and Poor's bank index shed 0.86%, while the Dow Jones industrial average lost only 0.48%. The S&P 500 fell 0.46% and the Nasdaq bank index - which comprises mostly thrifts - lost 0.39%.
Among the biggest losers were BankAmerica Corp., which declined $1.50 to $87.625; CoreStates Financial Corp., off $1.375 to $47, and Fleet Financial Group, down $1.125 to $47.75.
"A number of the superregionals that were among the strongest performers had some meaningful" declines, said analyst Frank Barkocy of Josephthal, Lyon & Ross Inc. "We are seeing some profit taking."
Mr. Barkocy added that he expects bank stock performance to be uneven in the next two weeks. "There will be periods or opportunities to buy into some of these stocks on weakness as we head into the election period," he said.
Analyst Sandra Flannigan of Merrill Lynch & Co. said that banks stocks have appreciated substantially, even though third-quarter earnings did not exceed expectations.
"We think we are at a stage where it is incredibly important for investors to be choosy," said Ms. Flannigan. "The easy money has been made in the group."
In spite of Tuesday's downdraft, the economic environment of moderate growth, low inflation, and reasonably strong corporate profits is "excellent" for stocks, said Thomas Carpenter, chief economist at ASB Capital Management.
The only risk, he said, is that high oil prices could "work their way into the consumer price index or producer price index numbers," triggering inflation fears.
"If oil prices get into monthly CPI and PPI numbers, then we will have higher-than-expected inflation and lower stock prices - and a slower economy.
"The bigger issue is we just went through Dow 6000 and the market is at record highs," he said.
Mr. Carpenter said that he does not expect the market to make "very strong moves between now and Oct. 30," the day when the gross domestic product statistics are released.
However, he said, investors will be grappling with a new question after that date:
Will the Federal Open Market Committee keep interest rates the same, or lower them?
Separately, Smith Barney Inc. downgraded Cal Federal Bancorp to "neutral" from "outperform" based on price. Cal Fed's shares fell 12.5 cents to $23.25.