Shares of bank stocks like Citigroup (C), Goldman Sachs (GS), Bank of America (BAC), and JPMorgan Chase (JPM) are soaring today…and it’s not just because former FBI Director James Comey’s testimony offered few fireworks.
What’s got banks all fired up? It looks like the House of Representatives is set to pass the so-called Financial Choice Act, which would do away with much of the regulation enacted under Dodd-Frank following the financial crisis. Does it stand a chance of passing the Senate? Probably not in its current form. But it does show that the Trump administration’s goal of deregulating much of the U.S. economy is moving forward despite the noise coming out of Washington.
KBW analysts Brian Kleinhanzl and Michael Brown contend large banks are set to outperform–and it has little to do with the politics:
Universal Bank stocks are trading at 66% of the S&P 500 P/E multiple based on 2018 consensus estimates and this is below the average relative forward multiple of 70% since 2011. We believe the current valuation remains attractive given positive catalysts are on the horizon. In the coming month, we are expecting the U.S. Treasury to release a report to address potential regulatory changes that could be done to align the current regulatory landscape with the principles of the administration’s executive order. In addition, we believe the Fed will increase the fed funds rate in June and messages about further rate increases and winding down the Fed’s balance sheet could be positive. Lastly, capital return is expected to increase in the 2017 CCAR and results could be above expectations, which would be another catalyst for bank stocks. Lastly if loan growth comes in better than expectations at second-quarter earnings, then we could see stocks rally again as fears of a sluggish lending outlook diminishes. Given we expect Universal Bank shares to rise meaningfully over the next year, we remain overweight the group and reiterate our Outperform ratings for BAC, C, GS, and Wells Fargo (WFC).
Shares of Bank of America have gained 2.1% to $23.09 at 2:36 p.m. today, while Citigroup has climbed 2.6% to $63.50, Goldman Sachs has risen 1.6% to $219.29, JPMorgan Chase has advanced 1.6% to $85.23, and Wells Fargo is up 1.3% at $52.78.