Updated from 7:10 a.m. ET with comment on Everbank from Sterne Agee analyst Peyton Green. NEW YORK ( TheStreet) -- The stock market rally -- led by the financial sector -- can't go on forever, so long-term investors need to dig a bit further to find value. A few years ago, when banks had clearly turned the corner from the credit crisis, it was fairly easy for investors to identify strengthening banks trading for less than tangible book value and at rather low multiples to forward earnings estimates. With the KBW Bank Index ( I:BKX) rising 31% this year through Friday, which followed a 30% rally during 2012, things appear to be getting a little "hot." Based on second-quarter results, the earnings improvement for banks has decelerated. Rafferty Capital Markets analyst Richard Bove, in a note to clients on July 25, wrote that for "the vast majority" of banks with total assets in excess of $25 billion "there was no improvement in core earnings but a significant improvement in reported earnings" for the second quarter. "The psychology today is that banks can do no wrong and the stocks are being aggressively purchased," Bove wrote. He added that "these stocks are still cheap," and that they "should be bought," but he also said investors need to "look for those that have shown core earnings growth." Bove also warned that "at this moment, it appears that any bank stock will do as long as it has the name 'bank' in it. That is dangerous investing." Most banks have continued a rather depressing focus on cost-control, during an extended period of generally weak demand for favored loan types and narrowing interest margins (NIM), as the Federal Reserve has kept the short-term federal funds rate in a range of zero to 0.25% since the end of 2008. The Federal Open Market Committee has repeatedly stressed that this "highly accommodative" monetary stimulus policy will likely remain appropriate at least until the U.S. unemployment rate drops below 6.5%. On Friday, the Bureau of Labor Statistics said the unemployment rate during July improved to 7.4% from 7.6% in June, so it would appear the banks will be kept waiting quite some time for the parallel rise in rates that will be brought about when the federal funds rate is finally raised.
long-term rates is a positive to future securities yields and commercial real estate loan pricing has improved implying a more favorable outlook for Signature's net interest margin." The analyst expects earnings growth of 12% next year for Signature Bank. But a focus on quality names with strong loan growth may not necessarily lead to the strongest returns. After all, Bank of America's shares have returned 28% this year through Friday, after more than doubling last year.