Bank Banks: Fed Fear Losers

NEW YORK ( TheStreet) -- Nearly all stocks of large U.S. banks were down on Tuesday, as investors continued to worry over a possible curtailment of bond-buying by the Federal Reserve.

The Dow Jones Industrial Average was down 0.5%, while the S&P 500 ( SPX.X) and Nasdaq Composite each saw declines of 0.6%.

The KBW Bank Index ( I:BKX) pulled back 1% to close at 61.00, with all but three of the 24 index components showing declines. Big banks with shares declining over 1% included Bank of America ( BAC), which closed at $13.36; Citigroup ( C), closing at $1.40; Fifth Third Bancorp ( FITB), at $17.92; Regions Financial ( RF), at $8.98; and Goldman Sachs ( GS), which closed at $161.68.

The market has taken a three-day pause amid a remarkable run for bank stocks. The KBW Bank Index is up 19% this year, following a return of 30% during 2012.

With a conflicting batch of recent economic reports, as well as contradictory statements in recent speeches by Federal Reserve chairman Ben Bernanke and other members of the Federal Open Market Committee, investors continue to worry that the central bank may curtail monthly purchases of $85 billion in long-term securities.

The Fed's massive balance sheet expansion is meant to hold down long-term rates. The central bank has also kept long-term rates at record lows for over four years, keeping the federal funds rate in a range of zero to 0.25% since late 2008.

The market always anticipates changes in monetary policy, and has pushed the yield on 10-Year U.S. Treasury securities to roughly 2.13% Tuesday from 1.70% at the end of April.

One of the more negative recent economic reports came from the Institute for Supply Management, which on Monday said its ISM manufacturing survey for May fell to 49 from 50.7 in April. This was the first time the figure was below 50, indicating contraction, since November.

In a note to clients on Tuesday, UBS economist Maury Harris wrote that "the latest manufacturing ISM data continued to be inconsistent with generally lower jobless claims and higher consumer confidence. While this inconsistency means we are not yet very worried about the US economy, there are enough ambiguity and crosscurrents in recent data reports to likely keep the Fed from dialing back on quantitative easing anytime soon."

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