Florida Banks Could Get Charley Boost

You may not be able to count on the recent rally, but here's a way you might be able to bank on it. While the glitzy and battered tech and biotech stocks have garnered the most attention with their move up in the past few days, buyers also were goosing the nation's large and small financial institutions.

In the big-cap arena, the clear favorites were Bank of America (BAC - commentary - Cramer's Take), which broke out of a long consolidation pattern on Wednesday, and Citigroup (C - commentary - Cramer's Take), which appears ready to shake its downtrend. As usual, however, the small-caps are a lot more interesting.

A month ago, I wrote about the incipient regional bank rally as it gathered steam. The 11 small banks featured there are up 4.6% vs. a 1% gain in the broad market since then. What's fascinating now is that most of the banks jumped a bunch on Wednesday despite the big move in much more speculative names. Normally, you would expect traders to switch money out of defensive stocks, like banks, if they were going to move over to the more speculative ideas.

These were not cheap moves, either. Los Angeles-based East West Bancorp (EWBC - commentary - Cramer's Take) gained 3.8% on volume of 856,000 shares -- more than two times its average; Commercial Capital Bancorp (CCBI - commentary - Cramer's Take) gained 8% on 1.6 million shares, which was about four times its average volume.

What's going on? It may have something to do with Hurricane Charley, strangely enough. Reconstruction of the Florida hurricane zone will cost billions of dollars. Thousands of houses will need to be rebuilt and, of course, all those houses will need mortgages. It would be a lousy break if these folks were forced to pay higher interest rates for their mortgages at a time of such distress.

So isn't it possible that the tremendous cost of Hurricane Charley could lead the Federal Reserve to hold off on raising its federal funds-rate target at its next meeting? Typically, a bet on regional banks and savings and loans is a bet on lower interest rates, as the spread between the amount that a bank pays for its money and the amount it receives from loan holders is essentially its profit margin. So perhaps then Wednesday's acceleration of the move in regional banks is a side bet on lower interest rates.

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At the time of publication, Markman was long First BanCorp and BankAtlantic, although positions may change at any time.

Jon D. Markman is publisher of StockTactics Advisor, an independent weekly investment research service, as well as senior strategist and portfolio manager at Pinnacle Investment Advisors. He also writes a weekly column for CNBC on MSN Money. While Markman cannot provide personalized investment advice or recommendations, he welcomes column critiques and comments at [e-mail].