Bank stocks leaped 2.6% Friday, fueled by a rally in long-term bonds as the government reported that jobs and wages grew more slowly than expected last month.
The American Banker index of the top 50 U.S. banks rose 15.5 points, to 610.8, and the AB225 rose 20.8 points, to 822.3.
The Labor Department said wages rose 0.1% in November, well below the consensus estimate of 0.3%. This gave investors reason to believe the Federal Reserve would be less likely to raise interest rates in the new year. The department also reported that the economy added 234,000 jobs in November, down from a revised 263,000 in October, adding to optimism that inflation could be kept in check.
Investors scooped up financial stocks on the news, latching on to a rationale for buying after more than two weeks of steady declines. Since Nov. 15, the Standard & Poor's index of 31 banks had lost 10% of its value, mainly due to rising long-term interest rates. With Friday's benign jobs report, almost every financial stock went up.
"Basically there was so much negativity, and everyone was so pent up and concentrating on the economic reports," said Adam Lewis, head trader at Keefe, Bruyette & Woods Inc. in New York.
All the money-center banking comnpanies performed strongly. For example, Citigroup Inc. rose $2.75, or 5.1%, to $56.75; Bank of America Corp. $1.0625, or 1.9%, to $57.4375, and Chase Manhattan Corp. $2.9375, or 3.7%, to $82.
Even companies that have had downward pressure on earnings estimates were up for the day. Stock of National City Corp., which recently reported earnings would fall short in 1999 due to shrinking interest rate margins, rose 68.75 cents, or 2.8%, to $25.5625. Shares of Keycorp, which also revised its earnings estimates for 1999 due to shortfalls in its investment banking division, rose 32.8125 cents, or 1.3%, to $25.875.
At any sign that the Fed might move to raise interest rates again, bank stocks have suffered. Investors see banks' earnings as sensitive, despite their increasing ability to hedge against rate fluctuations through the use of swaps and other derivative instruments. Also, over the years, Mr. Lewis said, investors' nervousness has made them less willing to take the long view, leading the markets to jump on the latest economic report.
"It's numbers du jour," Mr. Lewis said. "Everybody is so hair-trigger. Everybody is trying to grasp for the last piece of information, picking over every number that is coming through."
Friday's ebullience may be short-lived. Some economists remain unconvinced that the numbers are enough to make the Fed stand pat in February, when the policymaking Federal Open Market Committee is scheduled to meet.
L. Douglas Lee, president of Economics from Washington in Potomac, Md., said the Fed may be more concerned about the tight labor market.
"The pool of unemployed people available for work hasn't really changed much," Mr. Lee said. "The conditions are ripe for wages to accelerate. The Fed is concerned we may not have enough productivity growth to sustain the economic growth without inflation."
Only a few banks were left behind in Friday's rise. First Tennessee National Corp. fell 31.25 cents, or 1%, to $31.4375, in the wake of market reaction to revised analyst estimates of the Memphis company's fourth-quarter capital markets revenues. One analyst, Jacqueline Reeves of Putnam, Lovell, de Guardiola & Thornton Inc. in New York, shaved her 1999 earnings estimate for First Tennessee by two cents Friday, to $1.91. She said the company's capital markets customers are remaining more liquid as year-2000 approaches, investing in paper with shorter duration, which translates to thinner margins for First Tennessee.
"In our view it is really a Y2K event," Ms. Reeves said. "What is going on at First Tennessee is a little more weakness in the fourth quarter." Still, she predicted 15% growth for 2000.
Meanwhile, shares of Hibernia Corp. fell 18.75 cents, or 1.5%, to $12 on Friday, despite an upgrading to "attractive," from "hold," by Don Kauth, an analyst at Keefe.
In other news, Charter One Financial Inc. said its shares would trade on the New York Stock Exchange starting this morning. Its shares gained 31.25 cents, or 1.5%, to $21.6875 on Friday, their last day of trading on the Nasdaq.
"This is a notable milestone for Charter One and a credit to our increase in market capitalization," said Charles John Koch, its chairman and chief executive officer. "By moving to the NYSE, we believe our stock will have greater visibility and less price volatility, continuing our commitment to maximize long-term shareholder value."
Charter One Financial, originally a thrift, is the holding company for Charter One Bank. It is one of the 30 largest U.S. bank holding companies, with about $32 billion of assets and more than 400 branches in Ohio, Michigan, New York, Illinois, Massachusetts, and Vermont.
Charter One Mortgage Corp., its home loan subsidiary, operates 37 loan production offices in 13 states, and Charter One Auto Finance, its indirect auto finance subsidiary, makes loans in nine states.