Bank stock indexes surged dramatically higher Monday, spurring talk of a rebound for the battered sector.
The American Banker index of 50 largest banks rose 3.2%, and its index of 225 banks rose 3.1%. Big gainers included Chase Manhattan Corp., up 2.72%, to $77.9375; Bank of America Corp., up 3.82%, to $45.1875; and Wells Fargo & Co., up 4.40%, to $34.125.
Bank stocks have been pummeled this year, mostly because investors see the lending business as vulnerable to rising rates. Because mid-term borrowing rates are edging higher than long-term lending rates, banks' profit margin on loans is under severe pressure, and as a result, the Standard & Poor's bank index is off almost 10% since the beginning of the year.
And with the technology sector red hot, bank stocks have had little chance of attracting investors.
Erosion in the valuations of many banks has been so severe that banks that once traded at price earnings ratios of 15 times next year's earnings are trading at multiples as low as 6 and 7.
Many said Monday's rally was long overdue.
"This is probably the end of the bottom," said Robert Albertson, who heads up a financial hedge fund, Pilot Financial. "Bank stocks will not necessarily go straight up after this, but they will go up."
Mr. Albertson noted that banks failed to attract investors even after they reported strong fourth-quarter earnings, and said market psychology was bound to change. "This rally had to happen. This is a herd market, and right now the herd is look at the banking sector," he said.
On Monday investors were selling technology stocks and returning to blue chips. The Dow Jones industrial average gained 1.79%, while the technology-heavy Nasdaq index fell 0.28%.
"As the market forms a bridge between the old economy to the new economy, banks have been oversold," said Carla D'Arista, an analyst at Friedman Billings Ramsey & Co. in Arlington, Va.. "The last time bank stocks sold at multiples this low, there was a globalized economic crisis."
To be sure, some observers said banks could fall back just as they did after a rally on Jan. 13, when the American Banker index of the top 225 banks gained 4.36%, and after another rally on Jan. 31, when the index of the top 50 banks gained 4.1%.
"No, no, no," said Lawrence Cohn, an analyst at Ryan, Beck & Co. "This not remotely a turnaround. The group was beaten to death last week and it was ready for a snap back. The reality is that higher interest rates have not gone away, nor have questions about recession been answered. Until we get answers to those questions, we will not see a turnaround."
But after a Friday session in which bank stocks fared relatively well during a broad selloff, some observers saw reasons to hope that the long slide is over.
"This could be a sign that the Internet bubble is losing some air," said Eric Rothmann, an analyst at First Security Van Kasper in San Francisco. "And if that is the case, more money is likely to flow into bank stocks because of their cheap valuations."
Investors are viewing bank stocks as "near-tech" stocks, Mr. Albertson said. "Banks have been trying to get consumers to bank through their PCs for almost 20 years," he said. "In a real way, banks were ahead of the Internet."