US bank stocks are climbing for a second straight day Thursday following president-elect Donald Trump’s electoral win.
Bank of America, Citigroup, Goldman Sachs, JPMorgan, Morgan Stanley, and Wells Fargo were all in the green by 4.5% to 8% as of 2:45 pm ET Thursday.
One major reason for the jump appears to be because Trump is expected to reduce regulation hampering bank profitability.
His win could also lead to increased inflation pressures, indicating that the Federal Reserve could begin increasing its rate of interest rate hikes.
Trading desks could also benefit from increased market volatility.
There are, of course, some risks for the financial industry on the horizon,as KBW’s Frederick Cannon and Brian Gardner highlighted in a recent note. Those include a US retrenchment from the global economy and trade agreements.
But, as the analysts point out, the near-term benefits appear clearer and more immediate than the risks.
Regional banks could perform better than the universal banks in the long-term, because of the larger banks’ international exposure.
Citigroup, Bank of America, and JPMorgan, for example, have larger international lending portfolios and could be hurt by isolationism. Citigroup in particular is at risk from its large exposure to Mexico and other emerging markets.
KBW’s Brian Kleinhanzl notes that Citi generates 40% of its revenue from emerging markets.
On the regulatory front, the market appears to be pricing in the fact that Trump’s administration will introduce laxer rules.
Trump has said he would “dismantle” the Dodd-Frank Wall Street Reform Act, for example, and “massively” cut back on other regulation. He has mentioned that he disagrees with breaking up the big banks, according to Barclays’ Jason Goldberg.
This would be good news for banks.
That said, neither KBW’s nor Barclay’s analysts believe the Dodd-Frank Act will ultimately be repealed. Barclays’ Goldberg also does not believe that the Consumer Financial Protection Bureau will be dismantled, as has also been suggested.
The analysts over at Fitch wrote in a note Thursday that the elimination of the CFPB would be “unlikely to have a material impact for banks in the aggregate,” noting that there has been little talk of repealing the Volcker Rule, specifically.
For Goldberg, the main reason Trump’s win could be a boon for the banks is if he has a positive impact on GDP growth.
“While it’s unclear the ultimate impact the new administration will have on GDP growth, it bears watching closely,” Goldberg wrote. “Factors that could influence growth either way include increased infrastructure spending, reduced taxes, a potentially larger federal deficit, possibly higher interest rates/inflation and reduced global trade.”
And from Fitch: “Generally, US financial institutions’ performance tends to be correlated with the overall US macroeconomic environment, particularly as it relates to economic growth. Judging by the campaign, the new administration’s economic policy is likely to revolve around tax cuts, renegotiating trade agreements, de-regulation and higher infrastructure spending.”
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