Bank stocks fell almost 3% Monday as investors worried that the Federal Reserve may be forced to raise rates again next year to stabilize the dollar.
Bank stock investors were worried about the dollar's decline against the yen, said Scott J. Brown, an economist at Raymond James & Associates, St. Petersburg, Fla. Japan's yen has been gaining strength recently as more investors put their monies in Japan's markets, he said.
"Japan got beat up so much last year that many people think the economy could be improving" he said. The yen improved to 102.4 to the dollar Monday, from 124.5 in May.
The American Banker index of top 50 banks fell 2.46% and its index of 225 fell 2.95% Losers included Bank of America Corp., down $3.5625, or 5.89%, to $56.9375; FleetBoston Financial Corp., down $1.4375, or 3.65%, to $37.9375; and PNC Bank Corp., down $2, or 3.45%%, to $54.50.
Worries about the dollar, coupled with reaction to some troubling economic reports last week, were enough to override a National Association of Realtors report that existing home sales fell 6.6% in October, an indication that inflation is subsiding.
"Most investors were unimpressed" with the housing numbers, Mr. Brown said. He said many concluded that the data were skewed by the effects of Hurricane Floyd and higher mortgage rates during the summer.
Last week the Commerce Department released higher-than-expected personal income and spending figures for October, suggesting that the economy is still growing at rapid pace. "Strong holiday sales also suggested that the consumers are out there spending," said Mr. Brown.
Investors are concerned by that the Fed is going "to pull the trigger on interest rates during its meeting in February," said Mr. Brown. "The fact that the short end of the yield curve is ratcheting up suggests a possible hike in February."
Separately, a George K. Baum & Co. analyst cut his recommendation on Southwest Bancorp, a $2.6 billion-asset banking company in Houston, to "neutral" from "buy," saying its business prospects do not justify its current price. Shares of Southwest have gained more than 10.5% in the last month after rumors circulated that the company was about to be taken over by Comerica Inc. for $28 a share. Shares fell 62.5 cents, or 3.18%, to $19, in trading Monday.
Southwest's management denied that the company was going to be taken over, said the analyst, Benjamin Crabtree.