Market Slide This Week Was Just a 'Correction.' (Dow Jones Industrial Average Loses 80 Points in 2 Days)
Forde, John P., American Banker
Market Slide This Week Was Just a "Correction'
Bank and thrift stock analysts on Wednesday took the stock market slide this week in stride, pointing out that a "correction'--even one powerful enough to pare 80 points from the Dow Jones industrial average in two days--was to be expected in the face of increasingly pessimistic expectations for the second half of 1986.
At best, analysts said, they expect only moderate prospects for most major bank stocks in the near future, pointing out that many large banking firms will be hard pressed to match 1985 first-quarter results when second-quarter earnings are released later this month.
Thrift analysts had a bit more to cheer about on Wednesday, as thrift shares began to recoup some of the losses suffered in the first two days of this week.
These analysts, who called for improved earnings at most major thrifts this year, blamed losses during the early part of the week on general market conditions. They also said the tumble gave some investors "an excuse' to take profits from shares that were sitting at record high levels late last week.
James J. McDermott Jr., an analyst with Keefe, Bruyette & Woods Inc., said that "banks participated in the downward spiral' in the stock market on Monday and Tuesday. He added, however, that the drop had eased by noon Wednesday, as the rest of the market also had quieted down.
Mr. McDermott traced most of the movement among bank stocks to recent revisions in the outlook for corporate profits in the second half of this year.
"Clearly, if there's a change in the economic environment, banks are going to feel it too,' he said. "There is a sentiment that a correction was due, especially because of the revised second-half outlook.'
Charles N. Cranmer, an analyst with Goldman, Sachs & Co., added that second-quarter earnings results probably will be lackluster for banking companies. He also said he expects a "fairly weak comparison in the second quarter, especially after the remarkably good first quarter' that banks posted.
All in all, however, both analysts figured that bank shares fared a little better in the downturn than the rest of the market. "Banks' [shares] were a little less stringent' in their adherence to general market trends than the shares of companies in other industries, said Mr. McDermott.
The Keefe bank index--which measures the performance of 24 bank stocks, including representative money center and large regional institutions --dropped about 3. …