Financials Climb on Economic News, Moody's Upgrade; Treasury Yields Rise

   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 [e-mail]