Magazine article American Banker

Big Banks Rise on Prospect of Moderate Rate Hike

Magazine article American Banker

Big Banks Rise on Prospect of Moderate Rate Hike

Article excerpt

Bank stocks rallied Monday as investors apparently shrugged off the increase in interest rates anticipated today from the Federal Open Market Committee.

Citigroup Inc., J.P. Morgan & Co., and First Tennessee National Corp. were standouts in a bank sector that performed strongly with the overall market. Citigroup was up $2.25 a share, to $48.5625; First Tennessee $1.375, to $34.375; and Morgan $6.625, to $139.5625.

The Standard & Poor's bank index gained 2.27%, and the Nasdaq bank index 0.95%, as the Dow Jones industrial average rose 1.79% and the S&P 500 1.77%.

"This could be the time for bank stocks to bounce back for a sustained rally," said Steven Berman, a financial services analyst at Stein Roe & Farnham. "Today the market is saying we'll get one, maybe two, rate hikes by yearend and that the Fed will successfully slow the economy."

Analysts said investors felt comfortable putting money into bank stocks because Federal Reserve policymakers are expected to raise rates one-quarter of a point and adopt a benign bias toward future hikes.

"It's becoming a foregone conclusion how the Fed will act," said David Trone, a banking analyst at Credit Suisse First Boston.

Mr. Trone said he did not expect policymakers to adopt a bias towards raising rates.

Inflation is under control, he said, pointing to price data from consumers and producers released last week.

"We've seen good numbers coming into this meeting," said Mark Davis, research director at the Banc Stock Group of Columbus, Ohio. …

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