Shares of U.S. financial firms just staged their biggest annual rally since 1997, creating a bonanza for Wall Street employees who received bonuses in deferred stock. The new year doesn’t hold the same promise.

The KBW Bank Index of 24 lenders increased 35 percent in 2013, the most in 16 years, and the Standard & Poor’s 500 Capital Markets Index of 13 securities firms and asset managers surged 49 percent, the most on record. Analysts tracked by Bloomberg predict shares of those companies will slip an average of 0.2 percent in 2014.

The rise in share prices that began in October 2011 has been a boon to traders and dealmakers at firms including Morgan Stanley that retooled bonuses after the financial crisis to include more deferred stock. The gains may slow as valuations near or exceed historic norms and the Federal Reserve phases out a policy that suppressed interest rates and boosted equities.

“It could be difficult for stock prices to generate similar gains in 2014,” Terry McEvoy, an analyst at Oppenheimer & Co., said in an interview. Financial firms are still operating in “a challenging environment to grow revenue,” he said.

Bank stocks “no longer appear cheap” and probably won’t perform better than the broader market this year, Christopher Mutascio, a Baltimore-based analyst at Stifel Financial Corp.’s KBW unit, wrote in a Dec. 11 note to clients. Lenders in the KBW Bank Index are trading at about 80 percent of the S&P 500 Index’s price-to-earnings ratio, above the 18-year average of about 76 percent, he wrote.

Shares of financial firms were part of a market-wide surge last year that drove the S&P 500 up 30 percent. While the narrower S&P 500 Financials Index rose 33 percent, it trailed gains by consumer, health-care and industrial companies.

The Fed’s efforts and a gradually improving economy pushed U.S. equities higher, said Shannon Stemm, an analyst at Edward Jones & Co. in St. Louis. Financial stocks rose even as mortgage fees declined, Wall Street grappled with a slump in fixed-income trading and firms settled legal claims and regulatory probes stemming from the financial crisis.

“If you take it back to the banks specifically, this has not been a very good year for revenue growth,” Stemm said.

During the first nine months of 2013, combined net revenue at companies in the KBW Bank Index rose 2.6 percent from the same period a year earlier, according to data compiled by Bloomberg. JPMorgan Chase & Co., the biggest U.S. lender, and Wells Fargo & Co., the fourth-largest, are scheduled to lead U.S. banks in reporting fourth-quarter results starting Jan. 14.

‘Eventual Trade’

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