NEW YORK (TheStreet) -- Bank stocks were mixed on Wednesday, as investors geared up for Friday's employment report from the Department of Labor, which could carry even more weight than usual, considering how jittery the market has been when reacting to economic developments over the past two weeks.

The broad indices ended lower while the KBW Bank Index (I:BKX) was down slightly to 66.11, with winners and loses roughly split. The index is only down 5% so far this year, but there's quite a change in tone from last year, when the index was up 35% and 2012, when it rose 30%.

The winner among the components of the KBW bank index was Cullen Frost Bankers (CFR - Get Report) of San Antonio, with shares rising 0.8% to close at $72.00. Cullen/Frost's shares are pricey when compared to many other regional banks, trading for 16.4 times the consensus 2015 earnings estimate of $4.39 among analysts polled by Thomson Reuters. Then again, the company has had a very strong and predictable track record, with good earnings performance every quarter through and after the credit crisis.

Sell-side analysts continued to highlight bargains among regional bank stocks that have pulled back this year. These include FirstMerit (FMER) of Akron Ohio, which according to Oppenheimer analyst Terry McEvoy has 32% upside over the next 18 months, well as KeyCorp (KEY - Get Report) of Cleveland and First Horizon National (FHN - Get Report) of Memphis, Tenn., which Credit Suisse analyst Craig Siegenthaler calls his "top picks" among regional names. Siegenthaler also believes investors may see a number of downward earnings estimate revisions, in light of "lower quality drivers" of fourth-quarter earnings results that beat analysts' expectations.

Looking Ahead to Friday

Automatic Data Processing on Wednesday said the U.S. economy added 175,000 nonfarm private-sector jobs during January, down from a downwardly revised 227,000 in December. The January employment-growth figure was "in line with the average monthly growth throughout 2013," said ADP CEO Carlos Rodriguez in a press release.

An estimated decline of 12,000 U.S. manufacturing jobs during January followed the recent them of slowing U.S. manufacturing growth, based on the Institute of Supply Management numbers released on Monday, which helped drive a sharp decline in stocks.

The Labor Department on Friday will release its employment report for January, which will include the unemployment rate, which declined to 6.7% in December from 7.0% in November. That was a significant decline, coming close to a Federal Reserve policy benchmark, however, the improved unemployment rate was partially driven by a 0.2% decline in the labor participation rate to 62.8%. The labor participation rate declined 0.8% during 2013, with a large number of people effectively driven from the labor force.

With the stock market being so sensitive to recent reports of slowing manufacturing growth in the United States and in China, as well as being jittery over fears of capital flight from emerging market economies, there could be quite a volatile reaction to the Labor Department's numbers on Friday. Investors would love to see continued improvement in the unemployment rate paired with a rise in the labor participation rate.

Banks and their investors are also anticipating a continued drop in the unemployment, because the Federal Open Market Committee said last week that it was likely to keep the short-term federal fund at its current target range "well past the time that the unemployment rate declines below 6-1/2 percent. The federal funds rate has been locked in a range of zero to 0.25% since late 2008. While the Fed's tapering of "QE3" purchases of long-term bonds is expected to lead to a rise in long-term interest rates, which will relieve some of the pressure on banks' net interest margins, most banks need to see a parallel rise in rates for a significant increase in their margins and net interest income.

The ISM on Wednesday said its non-manufacturing index rose to 54 in January from 53 in December, coming in of the consensus estimate of 53.6, among economists polled by Thomson Reuters. The report's employment index increased 0.8 points to 56.4, indicating growth in service employment for the 25th consecutive month and at a faster pace. ISM index numbers above 50 indicate expansion.


This chart shows the stock performance of all four regional banks listed above, against the KBW Bank Index and the S&P 500 ^GSPC since the end of 2011:

CFR Chart data by YCharts

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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 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.