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Citigroup: Lockhart Winner

He also emphasized that "keeping short-term interest rates near zero for a considerable time after asset purchases end will help maintain a high degree of monetary policy accommodation." That comment helped sooth any investor fears of a near-term rise in the federal funds rate.

While having the federal funds rate near zero has factored heavily in the broad stock market rally this year and last year, banks are looking for a "parallel" rise in interest rates, will only come about when the federal funds rate starts to rise.

According to BMO Capital Markets analyst Lana Chan, that should already be baked into bank stock price targets. Chan raised price targets for a slew of regional banks. She expects the federal funds rate to begin to rise in the middle of 2015, moving up to 1% at the end of that year, and rising to 2.0% by the middle of 2016.

In economic news, the Census Bureau said its advance estimate for retail sales in the U.S. for July was a seasonally adjusted $424.5 billion, increasing 0.2% from June, and 5.4% from July 2012.

The July sequential retail sales growth number came in below the consensus estimate of 0.3% among economists polled by Thomson Reuters.

On a brighter note, July was the fourth consecutive month for retail sales increases, and excluding auto sales, retail sales were up 0.5% from June. The total retail sales growth number for June was upwardly revised to show a gain of 0.6% from May.

Sterne Agee economist Lindsey Piegza in a note to clients on Tuesday provided a "bottom line" to the retail sales report: "While positive, this morning's retail sales report was far from robust, and not yet enough to eradicate fears of a consumer slowdown undermining growth in the second half of the year."

According to Piegza, "the effects of tax increases often take time to filter into consumers' long-run spending patterns, and with government furloughs taking effect coupled with modest employment gains and minimal income growth, there is plenty of cause for caution."

The KBW Bank Index (I:BKX) rose 0.3% to close at 65.36, with all but nine of the index components showing gains. Large banks seeing shares rise over 1% included Morgan Stanley, which closed at $26.96, and Goldman Sachs, closing at $163.71.

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-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.
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