Financial company stocks have traded in a very narrow range over the last several weeks. Following the massive sell-off that drove many stocks to all-time low prices, shares of financials led the way for the two month stock rally that began after the Dow dropped to nearly 6,500.

However, still far from returning to price levels prior to the economic downturn, many bank stocks have been stuck in neutral, waiting for the next move. Citi had quadrupled its price after dipping below $1 earlier this year. But the stock fell flat at the $4 level and currently trades at $3.57. Citi still has quite a journey to make amends to traders who bought in around the $30-40 levels late last year.

Heartland Financial is a regional holding company that traded down from the $30 price point before the economy fell, to a low around $8 per share. The company has since doubled to nearly $16, but has been trading in the $14-16 range for weeks.

Even $3 million quarterly earner Wells Fargo has been stuck in the mid-$20s for weeks after spiking near $30 following its remarkably impressive results.

Apparently investors are cautiously waiting to see what is to happen in the economy and in the credit sector before taking action. Beaten down so badly that many stocks were selling for bargain basement prices, it was inevitable that financial stocks would bounce rapidly at the initial signs of a market bottom.

Citi helped kick things off when it announced in March that it had profited the first two months of the year. This incited emotional buying from traders who were looking for any sign that the US wasn’t headed for financial ruin.

After significant bounces, though, reason has taken over. Shareholders aren’t selling, but buyers aren’t as aggressive at this point. Investors appear to be waiting to see whether Fed Chief Bernanke and others are correct that the recession will end before 2009 is ended.

There are some analysts speculating that once more signs of recovery come about, especially in the financial sector, another spike could bring prices in many bank stocks to double or even triple what they are now. This would certainly be a nice boost to the portfolios of trouble mutual funds and investors.

It might be a while before this plays out, though. Along with profitability and stability being demonstrated by the large banks and lenders, some investors will want to see unemployment peak. Consumers need jobs in order to buy and borrow. Banks want to see income in order to send money out the door.

Neil Kokemuller
10:54 PM EST
Thursday, June 4, 2009

Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA. He has a MBA from Iowa State University. He is also in house stock market commentator at Live Charts UK, where you can find real time charts and share prices .
Please note: The information provided in this article is intended for informational and entertainment purposes, and not as advice for financial decisions or investments. Actions taken on the basis of the information shared is at the sole risk and discretion of the individual. Currency investment poses significant risk of loss.