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Big Banks: Friday Financial Winners

NEW YORK (TheStreet) -- The nation's largest banks again led the way on Friday, as the broad indices pushed to record highs.

Dow Jones Industrial Average rose 1% to end at a new closing high of 15,354.40, while the S&P 500 (SPX.X) was also up 1%%, ending the session at a record closing high of 1,666.12.

The KBW Bank Index (I:BKX) was up 2% to close at 61.13, with all 24 index components showing gains.

Two upbeat economic reports helped restore investor enthusiasm, following a brief pause for the market rally on Thursday.

The University of Michigan Consumer Sentiment Index rose significantly to 83.7 in May from 76.4 in April. The May reading was the highest level for the index since Sept. 2007,. The consensus expectation among economists polled by Thomson Reuters was for the index to improve to 78 in May.

The Conference Board said its Leading Economic Index (LEI) rose by 0.6% during April to 95.0, following a decline of 0.2% in March and an increase of 0.4% during February. This was the highest level for the index since February 2012, coming in ahead of a consensus estimate for an increase of 0.2%.


Board economist Ataman Ozyildirim said the rebound during April was "led by housing permits and the interest rate spread. Labor market conditions also contributed, although consumers' outlook on the economy remains weak. In general, the LEI points to a continuing economic expansion with some upside potential."

For investors worried about an overheated stock market, FactSet analyst John Butters had some interesting comments. In his firm's Earnings Insight report on Friday, Butters wrote that "the forward 12-month P/E ratio for the S&P 500 now stands at 14.4, based on [Wednesday's] record closing price (1650.47) and forward 12-month EPS estimate ($114.94). This is the highest forward 12-month P/E ratio logged by the S&P 500 in more than three years (April 2010)."

According to Butters, the forward price-to-earnings ratio of the S&P 500 "is above both the 5-year average (12.9) and the 10-year average (14.1)."

"On the other hand, the current forward 12-month P/E ratio is still well below the 15-year average (16.5)," Butters wrote. "During the first two to three years of this time frame (1998 - 2001), the P/E ratio was consistently above 20.0, peaking at around 25.0 at various points in time. With the forward P/E ratio still below the 15-year average and not close to the higher P/E ratios recorded in the early years of this period, one could argue that the index may still be undervalued."


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