With the expectation that a Trump presidency would see lighter regulations in the banking sector and the prospect of a gentle rise in interest rates starting next month, many analysts believe the post election rally in the industry is just the start of a major upswing.
Optimism is hitting new heights as a prolonged dip in the sector may finally be coming to an end. Banks have been suffering under ultra-low rates and tougher rules after the world economic crisis of 2007-2009.
Following Trump’s shock victory, the S&P 500 bank subsector jumped 10.3 percent, posting its best figures in over seven years.
Shares for some of America’s biggest financial houses climbed over 10 percent, and investors say the increases are not even close to their ceiling yet.
“Bank shares have a long way to go before they can be considered expensive,” said Stuart Poulson, Head of Corporate trading at Nikko-Desjardins Asset Management. “If we see the expected hike from the Fed before the end of the year and if the Trump administration gives some indications as to how regulations are going to be altered then the current upswing in shares can most definitely go higher.”
One of the more notable regulations that Trump might change is the minimum asset threshold for so called “too big to fail” financial institutions. The level is currently set at $50 billion. If the government raised this to $300 billion, for example, it could offer a lot more flexibility to banks operating at that kind of level.
Mr. Trump is due to make announcements regarding his administration postings in the next month and the financial community will be eager to learn what kinds of personalities the President-elect will put in charge of The Treasury and the Department of Commerce.
Kevin Baker, Piper Jaffray chief analyst, said, “It’s going to be a very interesting few months as Trump takes over the reins of power. I don’t think anyone is certain how many of his pledges he will deliver on but certainly the expectation of his economic policies is having a positive effect on the markets at this moment in time.”
Trump has already made clear that he will not be forging ahead with a free trade agreement involving Pacific-rim nations.
