Magazine article American Banker

Taboo Dead? Fed Rate Hike Didn't Hurt Bank Stocks

Magazine article American Banker

Taboo Dead? Fed Rate Hike Didn't Hurt Bank Stocks

Article excerpt

Investors have recently been ignoring the old Wall Street taboo against buying bank stocks when interest rates are rising. But can the rally last?

Banks soared past most other stocks last week after the Federal Reserve Board tightened credit for the fourth time this year, and indicated it was finished lifting rates for now.

The Fed's action removed the uncertainty that had unnerved the financial markets recently and prompted a rally.

During the five trading days through last Thursday, the American Banker index of 225 bank stocks was up 4.3% versus a 2.9% gain for the Dow Jones industrial average.

But even as the markets expressed confidence that banks can prosper amid rising rates, some analysts were urging caution.

"As long as the fears are out of the bond market, the banks can go a bit higher," said Lawrence W. Cohn of PaineWebber Group Inc. "But we've had quite a nice move already. Unless the market really takes off it will probably be a lot of work to get these stocks up."

Among the current optimists is George M. Salem of Prudential Securities Inc., frequently bearish in the past. "I feel more positive now than I've been in a year," he said last week.

"The bank stocks have gone from being a laggard sector to one that is likely to outperform the market," said Mr. Salem, who hiked his investment recommendations on four major banks last week, three of them to new "buy" ratings.

"The market for them is still a little queasy, but we're starting to get some people focused on these stocks," said Robert A. …

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