Stocks: Bank Stocks Climb Sharply on June Price Index Report

By Keenan, Charles | American Banker, July 16, 1999 | Go to article overview

Stocks: Bank Stocks Climb Sharply on June Price Index Report


Keenan, Charles, American Banker


Bank stocks surged Thursday, buoyed by a positive consumer price index report for June and solid earnings announcements.

The Labor Department announced in the morning that the consumer price index for June was unchanged from May, at 166.2-the second consecutive month it was unchanged.

Though most bank stocks were pulled into the upward stampede, there were exceptions. State Street Bank, which lost more than 7% of its value Wednesday, dropped another 3.1% on Thursday. And credit card issuer Capital One Corp. dropped 7.3%.

But most banks fared very well. When the market opened, bank stocks charged out the gate and never looked back. The Standard & Poor's bank stock index rose 1.1%, to 700.76, while the Dow Jones industrial average rose 0.3%, to 11,186.41.

The consumer price index number "was great news and took a lot of concerns of inflation away," said Katrina Blecher, an analyst for Brown Brothers Harriman Inc. in New York. "It's just what the bank stocks love."

While the inflationary demons of June had been subdued by the Federal Reserve's rate hike and its announced shift from an anti-inflation to a neutral bias, Thursday's release gave investors a clearer picture of the future.

"The CPI report indicates that inflation is tamed for now and nowhere to be found," said Sung Won Sohn, senior vice president and chief economist at Wells Fargo & Co.

With the consumer price index news, Mr. Sohn said the worst possible outcome from the next meeting of the Federal Reserve Open Market Committee in August would be a switch to a tightening bias, from neutral. But that probably won't happen, he added.

Mr. Greenspan "would need at least a couple of months of higher inflation numbers to justify higher interest rates," Mr. Sohn said.

Also helping many bank stocks were a number of solid earnings announcements. For instance, the stock of BankBoston Corp. surged 3.7%, to $50.8125, on reported earnings of $250 million for the quarter, or 83 cents a share, up 10.7% from a year earlier. Similarly, shares of Cincinnatibased Fifth Third Bancorp rose 3.1%, to $67.6875, on its earnings reportnet income was $162 million, or 59 cents a share, a 18% increase. …

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