US bank stocks on a roll, but for how long?

 It's been a banner year for long-beleaguered US bank stocks, but now investors have to worry if the shares will flag.
After two years on life support, bank stocks and broader industry indexes have enjoyed strong gains in 2009, including a 3 percent rise in the sector's major index and a several-fold spike in share prices for the biggest US banks since a March bottom.Many analysts say the industry is resurgent, like the banking boom in the 1990s that followed the commercial real estate crash, but others are skeptical."There will be some price gains and losses short-term, but this is very similar to the performance I remember in October 1990," said Jeff Davis, senior research analyst at FTN Equity Capital Markets.
"If you went back to October 1990, it looked like the world was going to end. It was a lousy two or three more quarters, but then the banks went on this two- to three-year run."

Investors, both individual and institutional, are becoming more comfortable investing in financial stocks as the industry stabilizes after a credit crisis that claimed two of the nation's largest banks and more than a hundred smaller ones, some analysts said.The KBW Bank Index is up 3 percent this year, closing Tuesday at 46.65. The index bottomed on March 6 at 18.62, down 84 percent from its July 2007 peak, but has been rebounding ever since.JPMorgan Chase & Co's (JPM.N: Quote, Profile, Research, Stock Buzz) stock price has nearly tripled from $14.96 on March 6, closing Tuesday at $43.58. Bank of America Corp (BAC.N: Quote, Profile, Research, Stock Buzz) stock has spiked 600 percent since a March 6 bottom of $3.14, closing Tuesday at $17.75.Michele Garren, an Atlanta-based Invesco Ltd (IVZ.N: Quote, Profile, Research, Stock Buzz) portfolio manager, said the asset management firm's $8.2 billion global equities portfolio is underweight banks. The firm is building positions in select banks with strong future growth prospects, but is cautious about the wider sector, she said."We feel like the system wasn't really cleared, that there wasn't the creative destruction needed for a strong rebound, but there are positive trends at work in the industry," said Garren, noting a favorable yield curve and some banks with strong capital bases for acquiring weaker rivals.Yet the short-term outlook remains uncertain, as investors contend with a weak economy and the prospect of rising credit losses.Some analysts say bank stocks have become too expensive, buoyed by hope rather than banks' current performance.Banks have not demonstrated an ability to produce earnings similar to pre-2007 levels and are still dogged by credit problems, Richard Bove, veteran banking analyst with Rochdale Securities LLC, said in a research note.
Investors, he said, are now buying weak bank stocks that used to be the high fliers of the industry, with the expectation that they'll return to their pre-crisis performance. Bove views that as unlikely."If there is any lesson to be learned from the movement of stock prices over the past decades, it is that expectations drive stock prices far more than fundamentals," he said in a research note. "Psychology trumps reality every time."