Bank stocks spent Tuesday recovering from Monday's slide, as investors returned in full force.
Remarks Monday by the Japanese prime minister interpreted as a threat to sell off Japan's huge cache of U.S. Treasuries stirred Wall Street fears of climbing interest rates, sending stocks plunging.
But the markets regained much of that lost ground on Tuesday, after the Japanese government said it had no immediate plans for bond sales.
"I call this the Don Knotts market," said Anthony R. Davis, bank analyst for Dillon Read & Co.
The actor, who portrayed Deputy Sheriff Barney Fife on television's "Andy Griffith Show," "was so easily spooked, his big old eyes would bug out" at the least bump in the night, Mr. Davis said.
If he is an investor, Mr. Knotts was surely very comfortable on Tuesday.
The Standard & Poor's bank index was up 2.25%, to 557.76, slightly better than the broad-market S&P 500, which rose 2%, to 896.3.
The Nasdaq banks fared well, rising 1.33%, to 1603.2, and the Dow Jones industrial average, which dropped 192 points on Monday, ended the day up 153.8, to 7,758, a 2% gain.
Consumer confidence in June rose to its highest level in 28 years, at 129.6, which may have had an effect on the market's rally.
"This current high level of confidence should not be surprising given that this is the lowest inflation and strongest earnings cycle of all time, and the unemployment rate stands at a 24-year low," said Cheryl Katz, senior economist at Merrill Lynch & Co.
But Ms. Katz cautioned, "The recent record level of confidence is likely indicative of the past robust economic environment rather than a signal for a pickup in consumer spending." She said high consumer confidence can signal the end of an economic cycle.
Mr. Davis, who recently joined Dillon Read to relaunch its bank coverage, announced coverage of three bank stocks.
He initiated coverage of First Bank System Inc., Minneapolis, with a "buy" rating, while rival Norwest Corp. got an "outperform" grade.
NationsBank Corp. received a "neutral" rating based on its high stock price. "We love the fundamentals," the analyst said, but the bank's stock has increased 40% over the year. It ended the day up $1.56, to $68.31.
Mr. Davis predicted that First Bank, whose stock gained 87 cents, closing at $86.75, will hit $100 within 12 months. Norwest, which climbed 75 cents to $58.125 on Tuesday, should reach $67 in 12 months.
He said the banks will trade in multiples at 90% of the overall market.
Historically banks have traded at 70% of the market, but "the industry will go to higher multiples over time," said Mr. Davis. "Their performance is better than ever before."