Magazine article American Banker

Fed Chairman and Bullish Analyst Give a Boost to Banking Stocks

Magazine article American Banker

Fed Chairman and Bullish Analyst Give a Boost to Banking Stocks

Article excerpt

Bank stocks rallied Wednesday on reassuring comments by Federal Reserve Chairman Alan Greenspan and a bullish report on the industry by a leading analyst.

The Standard & Poor's bank index gained 1.54%, to 528.75, while the S&P 500 rose 1.39%, to 801.90, after the Fed chairman softened his warnings about an overheated stock market.

At the same time, Henry C. Dickson of Smith Barney Inc. raised his price targets for 16 regional and money-center banks, projecting sustained 12% earnings growth for the sector.

"Right now, it looks like banks will create more value than the other guys," Mr. Dickson said, suggesting that investors will continue to find bank shares attractive, even at their current high prices.

In the morning, Mr. Greenspan told the National Association of Business Economists that stocks are not necessarily overvalued-as long as projections of corporate earnings hold up.

That sent equity prices sharply higher, with bank shares rising about twice as fast as the broader markets.

After a midday lull, the bank-led rally resumed on news that Mr. Greenspan started his testimony to the House Banking Committee with additional reassurances about the market (see story on page 2).

Mr. Greenspan said in written testimony, which was otherwise identical to that delivered last week to the Senate Banking Committee, that the Fed does not have "a firm view that equity prices are excessive right now or risk spreads patently low."

"It appears as if the worst fears haven't been realized," said Kevin Flanagan, money market economist at Dean Witter Reynolds, commenting on the afternoon surge in stocks. …

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