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."

And that gives investors plenty to think about over the weekend.

Here are the forward P/E ratios for the large U.S. banks that showed gains of at least 2.5% on Friday:
  • Shares of JPMorgan Chase (symbol) closed at $52.30 on Friday. The shares trade for 8.9 times the consensus 2014 earnings estimate of $5.94 a share, among analysts polled by Thomson Reuters.
  • Capital One Financial (symbol) closed at $60.83, trading for 9.1 times the consensus 2014 EPS estimate of $6.66.
  • Morgan Stanley (symbol) closed at $25.19, trading for 9.9 times the consensus 2014 EPS estimate of $2.54.
  • Commerce Bancshares (symbol) of Kansas City, Mo. closed at $43.10, trading for 14.8 times the consensus 2014 EPS estimate of $2.92.


-- 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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