By Brett Philbin
Financial stocks rose across the board Tuesday, leading the
broader market higher, amid encouraging economic data and a key
upgrade of the U.S. banking system, while Treasury yields climbed
to their highest level in more than a year.
Financials were the biggest gainer in the Standard & Poor's
500-stock index, with the sector advancing 1.3%. The increase was
part of a market rally as stocks posted their best day in nearly
five months.
The NYSE Arca Broker/Dealer Index, a grouping of securities firm
stocks climbed 2.5%, while the Keefe, Bruyette & Woods Bank
Index, a collection of major bank stocks, rose 1.5%.
"It's part of the overall bullish tone," of the market, said
Steve Sosnick, an equity risk manager at Timber Hill, the
market-making unit of Interactive Brokers Group Inc. (IBKR).
Big banks, securities firms, and online brokerages moved higher
as investors applauded a mix of positive news. Earlier Tuesday, the
Standard & Poor's Case-Shiller index, showed that home prices
posted their largest annual gain in more than seven years, a
welcome data point for banks, both in terms of potential revenue
growth from their mortgage businesses as well as fewer loan losses
from underwater home owners.
In other good news for banking, Moody's Investors Service has
raised its outlook on the U.S. banking system to stable from
negative--its first positive outlook revision for the sector since
2008. Moody's says the Federal Reserve's low-interest-rate policy
could help drive growth in private-sector employment and support
real-estate values.
Meanwhile, U.S. Treasurys fell, pushing the yield on the
benchmark 10-year note up to 2.13%. Brokerages and banks have been
crimped by low rates for more than four years, which have hurt the
profitability of their investing and lending businesses and forced
firms to waive fees on their money-market funds.
In a note to clients, Andrew Wilkinson, chief economic
strategist at Miller Tabak & Co. LLC, said, "There is nothing
investors welcome more in terms of earnings prospects for financial
names than a steeper yield curve."
Among financial stocks trading higher were TD Ameritrade Holding
Corp. (AMTD), which rose 4.7% to $23.45, earlier reaching its
highest price since September 2008, while Charles Schwab Corp.
(SCHW) climbed 3.6% to $19.84, ear-lier rising to its own highest
level since October 2009. Rival online brokerage E*Trade Financial
Corp. (ETFC) was up 3.9% at $11.73.
Those companies that hold customer balances are the ones that
would "show an immediate bottom line benefit to higher interest
rates," Mr. Sosnick said.
Several big banks also rose Tuesday, including Morgan Stanley
(MS), which climbed 1.8% to $24.80, while Goldman Sachs Group Inc.
(GS) gained 1.9% to $161.23. Commercial banking giant Citigroup
Inc. (C) was up 1.8% to $51.40, while regional brokerage Stifel
Financial Corp. (SF) and trust bank State Street Corp. (STT)
climbed 4.4% and 3.8%, respectively.
--Matthias Rieker contributed to this article
Write to Brett Philbin at brett.philbin@dowjones.com