Bank stocks rebounded on Tuesday as investor fears of rising interest rates were overcome by the lure of buying opportunities.
The Standard & Poor's index of major banks left the Dow Jones industrial average and the S&P 500 index in the dust, gaining 1.07%. By comparison, the Dow was up only 0.54%, while the S&P 500 increased 0.34%
The gap had been even wider at midday, when the S&P bank index stood at 1.28%, compared with 0.56% for the Dow and 0.48% for the S&P 500. Bank of New York stirred late interest with a stock split and dividend hike.
Most analysts agreed that the downdraft and rebound in bank stocks over the last two days were expected, but not warranted.
"Bank stocks got oversold on the interest rate fears," said analyst Robert B. Albertson of Goldman, Sachs & Co. "Bank stocks react short term and then recover. We might get another uptick for two or three days and then we will back to where we were started."
Mr. Albertson added that investors ought to think twice about overreacting to the prospect of higher interest rates.
"If you do the statistical analysis, the correlation between banks and interest rates is zip." he said. "They should be more concerned about a trend in revenues and credit quality as opposed to a move by the Fed."
Analyst Richard X. Bove of Raymond James & Associates, St. Petersburg, Fla., agreed that such fluctuations in the market are unsubstantiated. Mr. Bove, who has done studies indicating there is no correlation between interest rates and bank performance, said: "I cannot believe people would actually sell (bank stocks) because of rising interest rates or the prospect of rising interest rates," he said. "In every period in the past 50 years that interest rates have risen, banks earnings have gone up. It can't be interest rates (that caused this volatility) it's got to be the moon."
Banks stocks that were in the vanguard of yesterday's rebound were BankAmerica Corp., up $1.50 to close at $75.125; Bankers Trust New York Corp., which rose $1.25 to close at $71.50; Mellon Bank Corp., which closed at $55.50, up $1.50; Comerica Inc., up 62.5 cents to close at $43.25 and Chase Manhattan Corp., up 62.5 cents to close at $67.875.
Chase may owe part of its boost to Morgan Stanley & Co., which resumed coverage of the company with a "strong buy" rating. Analyst Arthur P. Soter said that he is wanted to cover Chase along with other money centers during these volatile times because he is "betting" that the company has more upside based on its earnings potential.
"Bigger is better, global is good and technology is king," said Mr Soter. "Money-centers, and especially Chase, fit that bill."
Mr. Soter's earnings per share estimates for this year and 1997 are $7.40, 8.65 and $10.10 respectively. His 12-month price target is $82.
Bank of New York shares jumped $1.25 to close at $50.375, after the company declared a 2 for 1 stock split and boosted its quarterly dividend by 10%.