And, as if to emphasize the market's lack of concern for higher interest rates, stocks of financial companies climbed dramatically for the first time in months. For much of the 1990s, financial stocks joined health care and technology in the trifecta of winning sectors. One reason rates have yet to bite is that most lending is tied to floating rates, meaning loan rates move in lock step with interest rates. One stock on most analysts' buy list is Fannie Mae, the huge government-sponsored mortgage wholesaler. Earnings rose 15 percent last year, and the company beat analysts' estimates in the fourth quarter.
Financial stocks are attractive for reasons other than just being cheap.
The population is aging, and people tend to use banks and brokerages more as they grow older and have a greater need to save for retirement. So far, the pace of mergers hasn't matched expectations, partly because the downturn in their stocks has caused some potential sellers to shun entreaties from suitors. But analysts anticipate an eventual pickup. Even those investors who favor New Economy tech stocks might find something to like in the larger financial services companies. Some, like Chase Manhattan, are beneficiaries of the market's infatuation with momentum trading and technology.