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Bank Stocks Lead Bulls: Financial Winners

Updated from 4:22 p.m. ET with comments from Guggenheim analyst Marty Mosby.

NEW YORK ( TheStreet) -- Bank of New York Mellon (BK - Get Report) was the winner among the largest financial names on Tuesday, with shares rising 4% to close at $32.26.

The broad indices all ended with 1% gains, as the Dow Jones Industrial Average (^DJI) and S&P 500 (SPX.X) pass intraday record highs. Financial stocks led the way, with the KBW Bank Index (I:BKX) rising 2% to close at 59.85, with all 24 index components ending the session with gains.

Big banks seeing shares rise 3% on Tuesday included Goldman Sachs (GS - Get Report), which closed at $154.52; Bank of America (BAC - Get Report), closing at $13.34; State Street (STT - Get Report), at $63.59; Northern Trust (NTRS - Get Report), at $56.67; and Huntington Bancshares (HBAN - Get Report), which closed at $7.69.

As the U.S. economic recovery proceeds, investors have obviously been showing increasing willingness to take on risk, sending the Dow Jones Industrial Average and S&P 500 both up 16% this year, the KBW Bank Index has risen 17%.

A major factor in the recovery has been massive stimulus from the Federal Reserve, which has kept its short-term federal funds rate in a target range of zero to 0.25% since the end of 2008. Since September, the Fed has keep up its monthly purchases of $85 billion in long-term securities, in an effort to hold long-term rates down.

Of course, the Fed cannot continue increasing the U.S. money supply at this rate forever, and the Federal Open Market Committee (FOMC) said after its last meeting on May 1 that it was "prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes." That was a change in the FOMC's language from previous statements, when the committee merely said it would "take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objectives."

Speaking Tuesday at a conference in Stockholm, Federal Reserve Bank of Philadelphia president Charles Plosser said that the " changes in the size and composition of the [Federal Reserve's] balance sheet pose challenges for the Fed's eventual exit from this period of extraordinary accommodation and for the normalization of monetary policy."
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SYM TRADE IT LAST %CHG
BK $43.93 0.00%
BAC $18.13 0.00%
HBAN $11.77 0.00%
GS $207.20 0.00%
NTRS $77.26 0.00%

Markets

Chart of I:DJI
DOW 17,745.98 -5.41 -0.03%
S&P 500 2,108.63 +0.06 0.00%
NASDAQ 5,128.7850 +17.0520 0.33%

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