Big Banks: Financial Winners on a Really Weird Day

NEW YORK ( TheStreet) -- The nation's largest banks on Thursday rallied after taking a beating on Wednesday following the release of the minutes of the Federal Open Market Committee's most recent meeting.

Cullen Frost Bankers ( CFR) of San Antonio saw its shares rise nearly 3% to close at $75.58. Large banks seeing shares rise over 2% included KeyCorp ( KEY) of Cleveland, which closed at $12.35; State Street ( STT) of Boston, closing at $69.73; Regions Financial ( RF) of Birmingham, Ala., at 10.06; M&T Bank ( MTB) of Buffalo, N.Y., at $118.75; and First Niagara Financial Group ( FNFG), also of Buffalo, N.Y., at $10.63.

Stock trading was disrupted, as Nasdaq OMX Group ( NDAQ) halted all trading at 12:14 p.m. ET. NYSE Euronext ( NYX) then halted all trading at 12:26, at the request of Nasdaq. This kept investors from trading shares of some of the most active tech names, including Apple ( AAPL) and Microsoft ( MSFT), for over three hours. Nasdaq blamed technical problems that were interfering with the dissemination of stock price quotes.

James Angel, an associate financial professor at Georgetown University and a former chairman of Nasdaq's economic advisory board, in an interview with TheStreet, said that "as we learned from the Facebook ( FB) incident, it's better not to trade, than it is to trade in a messy and disorderly way." Angel referred to the debacle surrounding Facebook's initial public offering in May of 2012, which was marred by numerous Nasdaq trading delays.

"Not only did the Nasdaq exchange go down, but the Nasdaq system that reports the trades to everybody, also went down." Angel was referring to Tape C, through which Nasdaq reports trades to other exchanges through the Securities Information Processor, or SIP.

"Every exchange has had their technology issues, over the past two years," Angel said.

Trading was soon restored on the New York Stock Exchange. Nasdaq resumed trading of just one stock, Atlantic American ( AAME), shortly after 3:00 p.m. ET, with quotes for all other listed stocks being released at 3:10 p.m. and after a 15-minute delay, all stock trading resuming at 3:25 p.m. Options trades were subject to further delays, of up to 20 minutes.

Nasdaq at 4:00 p.m. ET hadn't yet provided any explanation of what caused the trading and quote reporting problems. Nasdaq's own shares were down over 3% to close at $30.46.

The Dow Jones Industrial Average rose 0.5% while the S&P 500 ( SPX.X) was up 0.9%, and the Nasdaq Composite ended with a gain of 1.1%.

The HSBC Flash China Manufacturing Purchasing Managers' Index showed an increase during August to 50.1 from 47.7 in July. A reading above 50 indicates expansion, and investors cheered the highest manufacturing PMI for China in four months. HSBC said "Businesses reported that output and new orders had started to rise, and the backlog of work increased. There was also a rise in the purchases of raw materials. However, new export orders fell at a faster rate and employment dropped, though at a slower rate. Output and supply prices both increased."

The news pushed shares of Peabody Energy ( BTU) up over 6% to close at $17.62, while Cliffs Natural Resources ( CLF) was up 6% to close at $22.45, and Freeport-McMoRan Copper & Gold ( FCX) rose over 3% to close at $31.35.

The story of economic strengthening outside the United States was bolstered by the Markit Eurozone PMI Composite Output Index, which showed the largest monthly increase in business activity for over two years in August, according to a flash estimate. The PMI rose for the fifth consecutive month to 51.7, from 50.5 in July, moving to its highest level since June 2011.

With Federal Reserve hysteria likely out of the headlines until after Labor Day, the KBW Bank Index ( I:BKX) rose 1.5% to close at 65.04, with all 24 index components showing gains. The worst performer among the index components was Wells Fargo ( WFC), which was up only slightly to close at $42.48, after Reuters on Wednesday reported the nation's leading mortgage lender would lay off 2,200 employees because of a decline in mortgage loan refinancing applications.

Stocks had taken a beating Wednesday following the release of minutes from the most recent meeting of the Federal Open Market Committee on July 30 and 31.

The short-term Federal Reserve concern for investors is the expected tapering of the central bank's monthly purchases of $40 billion in long-term agency mortgage-backed securities and $45 billion in long-term U.S. Treasury bonds, which has been going on since last September. The market has looked ahead to the expected rise in long-term interest rates that will be brought about by a limiting of Fed expansion, by pushing the market yield on 10-year Treasury bonds to 2.91% from 1.70% at the end of April.

A continued increase in long-term rates is expected to weigh on stocks, as other investment types become more attractive to investors.

According to the FOMC minutes, committee members "confirmed that they were broadly comfortable" with views expressed by Federal Reserve Chairman Ben Bernanke at a press conference in June. "Under that outlook, if economic conditions improved broadly as expected, the Committee would moderate the pace of its securities purchases later this year. And if economic conditions continued to develop broadly as anticipated, the Committee would reduce the pace of purchases in measured steps and conclude the purchase program around the middle of 2014."

"In our view, the base case for the FOMC still appears to be a tapering announcement at the September 18 FOMC meeting, assuming no major surprises in the key economic data (i.e., August jobs report) and financial conditions," UBS economist Maury Harris wrote in a note to clients Thursday. "We still expect the initial adjustment will be modest: a $10 billion reduction--split evenly between Treasuries and MBS," he added.

The Labor Department on Thursday said first-time unemployment claims for the week ended Aug. 17 increased to 336,000 from an upwardly revised 323,000 the previous week. Jobless claims came in above the consensus estimate of 330,000, among analysts polled by Thomson Reuters. The partial reversal of the previous week's sharp decline in unemployment claims may have soothed investors concerned about a heating economy and rising interest rates, especially following the release of the FOMC minutes.

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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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