Bank stocks broke away from the pack Monday as investors started to focus on the industry's potentially strong first-quarter earnings.
The S&P bank index gained 2.23%, leading a broad market rally that lifted the S&P 500 Index 1.75%.
Among the top banks, strong gains were recorded by J.P. Morgan & Co., up 2.50 to $82.50, Bank of Boston Corp., up $2.25 to $49.625, and SunTrust Banks Inc., up $1.875 to $71.75.
"This is likely to be a good quarter," said Raphael Soifer, bank analyst at Brown Brothers Harriman & Co. He noted that loan losses "are at a comparatively low level, consumer loan demand is still strong, and at least the first half of the quarter was favorable for trading profits."
With the market stabilizing somewhat after the early-March selloff, analysts and investors have been calling banks and liking what they hear about anticipated first-quarter results, said Richard X. Bove, analyst at Raymond James & Associates.
Optimism about earnings "will be the driving factor" for bank stocks in coming weeks, Mr. Bove said.
The move by bank stocks was supported by a mild rally in the bond market. But Mr. Bove noted that the bank stocks, which tend to move in tandem with bonds, had "decoupled" from the bond market thanks to the recent focus on earnings.
Traders noted investors were starting to focus on some groups, including banks, that had underperformed the market in recent weeks.
Among the big gainers was Bankers Trust New York Corp., up $2.25 to $69. Mr. Soifer said the stock was lifted by a statement in the company's annual report that 1996 earnings are expected to reach a level closer to 1994's results than to last year's.
If the bank can match the $615 million it earned in 1994, it would translate to about $6.80 a share this year, well ahead of the consensus on Wall Street, Mr. Soifer said. First Call Corp. last week reported a consensus of $6.21 per share for Bankers Trust.
Shares in Barnett Banks Inc. gained $2 to $62.875, after Mr. Bove upgraded the stock to "buy" from "accumulate."
Mr. Bove said Barnett's shift to higher-yielding assets will help boost net interest margins more than enough to offset a 15% increase in the loan loss provision.
The analyst also noted growth in the company's Equicredit subsidiary.
Another plus for Barnett, Mr. Bove said, is a gain of 15 cents per share from the sale of Bank South Corp. stock to NationsBank, which recently acquired the Atlanta company. He said that amount would eventually be returned to Barnett shareholders in the form of lower expenses.
PNC Bank Corp. stock, which was upgraded Friday to "outperform" from "hold" by Lehman Brothers analyst Michael Mayo, rose $1 to $31.125.
Mr. Mayo said PNC is due for a comeback. The stock has slipped on what Mr. Mayo termed an "overreaction" to the high price the Pittsburgh-based bank paid for Midlantic Corp. and to the news that influential investor Warren Buffett was reducing his stake.
The analyst also said the market has not yet credited PNC for reducing its interest sensitivity.