U.S. banks had a lot to cheer about after Donald Trump won the presidential election, with shares of most bank stocks surging. But that euphoria isn’t expected to be short-lived, with Reuters reporting the rally last week is just a little taste of what is to come.
According to Reuters, shares of bank stocks should continue to climb as investors bet the banks will benefit not only from rising interest rates but from a regulatory body under President-elect Trump that is less stringent than under President Obama. Investors think Trump will maintain his promises he made on the campaign trail, including reviewing the number of regulations that have been placed on banks since the financial crisis of 2008. Trump seems to be doing so, noting on his transition website that regulations have hurt the economy, not helped it.
“Following the financial crisis, Congress enacted the Dodd-Frank Act, a sprawling and complex piece of legislation that has unleashed hundreds of new rules and several new bureaucratic agencies. The proponents of Dodd-Frank promised that it would lift our economy,” says the Trump transition website. “The Dodd-Frank economy does not work for working people. Bureaucratic red tape and Washington mandates are not the answer. The Financial Services Policy Implementation team will be working to dismantle the Dodd-Frank Act and replace it with new policies to encourage economic growth and job creation.”
It doesn’t hurt that the valuations of bank stocks are still well off their peak levels of trading more than 33 times earnings estimates. Piper Jaffray Analyst Kevin Baker told Reuters that, if interest rates increase and Trump’s administration provides more information as to how regulations will change, it could send shares of bank stocks higher.
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