Battered bank and financial stocks retreated further last week amid continuing investor wariness that the Federal Reserve will soon raise interest rates.
Stocks across the financial sector have been roughed up in volatile trading since fears of inflation were rekindled a month ago by an unexpectedly dramatic 0.7% jump in the April consumer price index. Stocks in other sectors have suffered as well.
Continuing a steady downward trend, the Standard & Poor's bank stock index last week fell 1.3%, to 656.5, and the Nasdaq bank stock index 2%, to 1801.43.
Thrift stocks fell further as well, with the American Banker index of thrift stocks dropping 2.9%, to 325.5.
Inflationary concerns are so strong in the market that Friday's report on the producer price index for May, which contained few surprises and might otherwise have been greeted positively, did little to nudge investors forward.
"It seems that the market is now expecting a Fed rate hike at the end of the month-and no later than the end of the month," said Stuart G. Hoffman, chief economist at PNC Bank Corp. in Pittsburgh. The Fed's monetary policy committee next meets on June 29-30.
Banks have carried a large share of the market's inflation concerns. The American Banker index of the top 50 banks fell 1.2% last week to 594.6.
Last week shares of Chase Manhattan Bank fell 1.1% to $73.50; Citigroup Inc. 1.1% to $43.0625; J.P. Morgan & Co. 4.8%, to $126.25; and Bank One Corp. 5.9%, to $53.75. Bank of America Corp.'s stock rose 3.9% to $67.4375.
Among financial services companies, the largest decliners for the week included Contifinancial Corp., which lost 20.4%, to $5.625; ARM Financial Group, down 18.3% to $10.625; and Advanta Corp., down 13.8%, to $15.5625.
The best gainers in financial services included WFS Financial, which fell 23%, to $14.375; and Metris Cos., up 11.8%, to $67.125.
Underlining the market's recent choppiness, stocks traveled in both directions on Friday while investors struggled to digest the May readings on producer prices, up 0.2%, and retail sales, up 1%.
"The market is still on interest rate watch and really hasn't made up its mind," said analyst Raphael Soifer of Brown Brothers, Harriman & Co. in New York. "You are seeing a mixed pattern without a firm direction in either way."
With many observers expecting the Fed's Open Market Committee to raise rates, long-term interest rates have been rising. The benchmark 30-year Treasury "long" bond last week poked above the 6% yield level, up from 5.45% just two months ago and 5.3% four months ago.
Unconfirmed rumors of a Fed meeting on Friday led to another Treasury selloff, with 30-year bonds closing at 6.15%.
Observers are unsure whether a Fed rate hike would settle the market. "Whether you will see continued selling afterward or a rebound would really depend on the economic data du jour," said Robert Becker, an analyst for Argus Research in New York.
This week market watchers will be focused on a Labor Department report on the consumer price index for May, due Wednesday. Information on housing starts and industrial production will also be released Wednesday, and Fed Chairman Alan Greenspan will testify before Congress on Thursday.