Bank stock prices surged Wednesday for a second straight session as doggedly optimistic investors ignored negative news from overseas.
Fresh concerns about Indonesia's economy sparked by President Suharto's dismissal of the head of the country's central bank failed to make a discernible impact.
Neither did strong comments from President Clinton Tuesday that the United States might attack Iraq if it continues to defy international efforts to monitor its production of weapons.
"Investors are realizing that financials are the place to be," said a bank stock trader. "Before, the market was wringing its hands about these issues globally, but now the market has discounted many of those concerns."
The Standard & Poor's bank index rose 0.90%, outpacing the Dow Jones industrial average, which climbed 0.63%. The Nasdaq bank index also surged, by 1.28%, as did the S&P 500, which advanced 0.91%.
If foreign developments were disquieting, the economic news at home was heartening for bank issues.
Bank stocks were helped by news that the producer price index declined more than expected in January, adding further evidence that inflation continues to fade from the economic landscape.
Also boosting the sector was a sweeping upgrading by money-center and financial services analyst Steven Eisman of CIBC Oppenheimer.
In a 30-page report released Wednesday, Mr. Eisman upgraded six major credit card issuers to "strong buy" from "hold." The companies are Chase Manhattan Corp., Citicorp, First Chicago NBD Corp., Fleet Financial Group Inc., Capital One Financial Corp., and MBNA Corp.
The analyst also raised his recommendation for Banc One Corp. to "buy" from "hold.
The shares of all seven companies outpaced the market as well as the Standard & Poor's bank index.
Chase Manhattan shares were up $1.0625, to $121.8125; Citicorp, 50 cents, to $128.25; First Chicago, $1.1875, to $81.75; Fleet, $1.4375, to $80; Capital One, $1.375, to $69.50; MBNA, $1.1875, to $35.375; and Banc One, $1.375, to $57.25.
Prospects for better credit quality and strong earnings prompted the comprehensive upgrading, said Mr. Eisman.
"The catalyst to producing this piece was the Mortgage Bankers Association's Refinancing Index," which rose to a dizzying 3,115.8 on Jan. 16. The index was 1,842.5 just the week before.
Mr. Eisman acknowledged that performance for several credit card companies remains lackluster. And other firms continue to show problems.
However, he asserted, an expected mortgage refinancing boom, declining credit card loss ratios, and a slowdown in the growth of bankruptcies all point to "dramatic" improvement in credit quality, which is likely to affect earnings in 1999.
Mr. Eisman also pointed out that Chase and Citicorp are most likely to improve because the "worst of the turmoil in Southeast Asia seems to be over." Those companies will also benefit from declining rates, which are spurring a strong fixed-income underwriting environment, he said.
More cautiously, Lawrence W. Cohn, research director at Ryan, Beck & Co., Livingston, N.J., said he was less certain about the prospects for better credit quality-particularly at First Chicago.
"We agree with most people that the worst regarding the credit card business has probably passed," he said. "However, we don't think credit quality is going to improve dramatically."
