Sorry, but the rocket-fueled climb in bank stocks that has surprised everyone over the last couple of days is probably over.
Large banks took off this week after months of sinking lower and lower. But seasoned bank stock players are saying that it may be some time before the
ingredients for a lasting climb -- such as an end to the
interest-rate hikes -- are in place. As a result, bank stock investors are buying only select names, and avoiding institutions that may struggle in a hostile economic environment.
KBW Bank Index
, which tracks 24 large bank stocks, jumped 17% over Wednesday and Thursday, the largest-ever two-day increase for the index, which was formed in 1992. This almighty move was definitely welcome: The KBW was more than 30% below its 52-week high on Tuesday. By early afternoon Friday, the index was off the high by 19%. (It was off 0.2% around midafternoon Friday.)
"I'm still being a little bit cautious," says Frank Barkocy, of New York-based
, a bank stock hedge fund. "The interest-rate environment is not going to change for a while." Barkocy, like many other investors, believes in well-known names like
. But he's also keen on
. (Keefe Managers owns shares in all those banks.)
Banking on a Rally
Barkocy has little confidence in troubled firms such as
. (Keefe has no position in any of those banks' shares.)
"We may have a little lull," says Lanny Thorndike, a manager on the
Century Shares Trust fund, which invests in financial stocks. "Like in any dead-cat bounce, both good and bad things go up." As well as Citi, Chase, Fleet and Wells, Thorndike is attracted by
. (His fund is long J.P. Morgan, Chase and Fleet and has no position in Citi or Wells.)
Jonathan Iseson, manager of Long Island-based
, a hedge fund, isn't getting too excited by the bounce-back in bank stocks. He believes that many banks still could get hurt by difficulties in the mortgage market, and he thinks the strength of the last two days is partly due to market-related or technical factors. For example, Iseson thinks that a popular derivatives trade that had hedge funds long
stocks and short the
(which has a lot of financial stocks) broke down this week.
And Iseson is now betting that banks will fall back. "I just bought a lot of puts
options that profit from the underlying stock's decline on
And part of Iseson's reasoning is that many of the favored banks have gotten too expensive already. "Chase at 90? Give me a break," he says.