Bank Stocks: Time to Buy or Run Screaming?

So, if the Euro-zone reached a resolution for its burgeoning debt crisis, the impact of "finreg" might not be quite so bad and Wall Street is bullish on big banks, why are their stocks still so depleted?

"The financial analysts, which the sell-side salesmen sift through, they're saying we're more interested in the financial stocks now than we were before," says Chuck Hill, chief market strategist at First Coverage. "In my view, it's high-risk but improving, too. But that doesn't count as much as what the sell-side is saying to their institutional clients. Clearly over the last six weeks, their outlook for buying financial stocks has declined."

Indeed.

Given that view, it's only natural to ask what it will take for the current correction to do an about-face. King Lip, chief investment officer at Baker Avenue, says his sentiment indicator shows a market that's only bullish on 20% of stocks. Lip, who's also quite bearish, won't become optimistic til that level breaches 50%, and investors start buying not just on good news, but bad news as well: "Rising tides lift all ships," he says.

Lip is positive only on gold and cash, and particularly dour on bank stocks. He thinks they'll trade within their current range until second-quarter earnings begin rolling out in mid-July. Then, investors will get a better sense of whether the headline news has had as much of an impact on the bottom line as it has had on investors' gut feelings.

Ireland, of Morrison & Foerster, explains the current sentiment by reflecting on the events of the past few years: "People got hurt -- individual people and institutional investors got hurt. They remember that pain and they got skittish. They don't want to get hurt again."

Kaplan, the financial adviser, has been advising clients for 27 years and takes a "here we go again" attitude of the current market drama. He sounds a bit like a financial Mr. Migayi of Karate Kid fame when outlining his macro view.

"The market will reach new heights like it never reached before," says Kaplan. "Hopefully it'll happen in my lifetime, but it'll certainly happen. But it'll also crash again too. A broken clock is right twice a day."

-- Written by Lauren Tara LaCapra in New York.

>To order reprints of this article, click here: Reprints