Bank stocks tumbled Wednesday on a report that consumer spending is on the rise.
The Commerce Department said overall retail sales grew 0.3% in September while nonautomotive retail sales grew 0.2%. Economists had expected the numbers to be unchanged.
Consumer spending rates for July and August also were revised substantially upward, which ignited selling in the bond and stock markets.
Sales growth "increases the likelihood that the Fed will raise rates," said economist Scott J. Brown of Raymond James & Associates Inc., St. Petersburg, Fla. The Fed is "obviously leaning toward raising rates and looking for compelling evidence to do so. The question is: Is it justifiable to raise interest rates on consumer spending?"
Interest rate fears more than offset a strong round of earnings reports by banks.
"Earnings have not been disappointing. In fact, banks are doing pretty well," said one trader who asked not to be identified. "But there is the specter of the 50-basis-point interest rate increase, which puts these stocks in a bit of a jittery mode."
Mr. Brown said the sales data came on the heels of an unexpected surge in the producer price index released last Thursday, and investors were becoming anxious about a consumer price report due today, he said.
Also undercutting banks was a general stock selloff spurred by a report that Intel, the large technology company, would not meet earnings targets.
The Standard & Poor's bank index fell 0.95%, and the Dow Jones industrial average declined 0.47%. The Nasdaq bank index rose 0.09%, and the S&P 500 fell 0.47%
Among banks, decliners included Bankers Trust New York Corp., whose shares fell $1.75, to $120.562; First Chicago NBD, down $2.25, to $75.25; and J.P. Morgan & Co., down 68 cents, to $119.875.
Bank analyst Frank J. Barkocy, managing director at Josephthal Lyon & Ross Inc., said investors were merely taking profits.
They are "selling on earnings strength," he said. "Our group has had a very strong run up, and earnings have come right in line with expectations. In a soft market, it is just a case of profit-taking. The economic data are still reasonably benign."
In other news, Star Banc Corp.'s shares fell $1.062, to $48.81, despite upgraded ratings from Donaldson, Lufkin & Jenrette and Keefe Bruyette & Woods Inc.
Donaldson raised the Cincinnati-based banking company to "buy," from "market perform," and Keefe upgraded it to "attractive," from "market perform."