Magazine article American Banker

Lehman Sees Summer Rerun in Bank Stock Performance

Magazine article American Banker

Lehman Sees Summer Rerun in Bank Stock Performance

Article excerpt

For some reason, bank stocks are behaving a lot like they did in August of last year, according to analysts at Lehman Brothers.

The parallel is particularly striking for the largest-capitalization bank stocks, which have recently been among the most volatile market performers.

A year ago global financial markets were reeling from twin financial crises in Russia and Asia, and the Federal Reserve was on the verge of cutting interest rates to inject liquidity. This year the concern is a too-hot U.S. economy and revived conditions abroad, with the Fed poised to raise rates as a hedge against inflation.

But while the business scenarios of this summer and last could hardly be more different, the movement of bank stocks could hardly be more similar.

"We note the similar mid-August, three-day bounce that occurred in 1998, which preceded a significant decline thereafter that lasted throughout the rest of the month," the Lehman analysts said.

On Thursday banks continued falling for a second day after sharp gains on Monday and during three days last week. The Standard & Poor's bank index dropped 1.29%, and the Nasdaq bank index 0.64%. The Dow Jones industrial average was off 0.25%, while the S&P 500 lost 0.69%.

"The jury is still out on whether the positive performance posted last week will be a head-fake similar to that which occurred in August 1998," the Lehman analysts - Diane B. Glossman, Michael A. Plodwick, Robert S. Patten, and Kenneth M. Usdin - said in their weekly report.

"Over the past few weeks the 1999 stock performance of both our bank universe and the broader market has started to look remarkably similar to that of 1998," they noted. "Granted, bank stock performance in 1999 has been muted on the upside by several percentage points when comparing the two major peaks in both years."

Last summer "market sentiment was driven by surprising negative events -- global financial instability and the uncertainty surrounding its resolution," the analysts said. …

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