It has been a tough ride for bank stocks this year, with the industry unable to sustain the post-election momentum after mid-February 2017. As a group, bank stocks didn’t do much from mid-February through early September. But they have experienced dramatic gains since September 8th, with a number of major bank stocks trading at or near their highs for the year.
This lack of sustained performance notwithstanding, the industry remains an integral part of the ‘Trump Trade’, with the industry handily outperforming the broader market since November 7th.
The chart below plots the performance of the Zacks Major Banks industry relative to the S&P 500 Index since the elections. Please note that the Zacks Major Banks industry includes all the money-center banks and big regionals that kick-off the Q3 earnings season for the industry on Thursday, Oct. 12 with the JPMorgan (JPM - Free Report) and Citigroup (C - Free Report) results.
What this chart (blue line represents the banking group) shows is that stocks in the Zacks Major Banks industry are up +28.5% since November 7, outperforming the S&P 500 index’s +19.2% gain in that same time period. The broader Finance sector, of which the Major Banks industry is big part, accounting for roughly 40% of the sector’s total earnings, is up +24% since November 7.
Bank stocks are up more than +8% over the past month, roughly double the S&P 500’s performance in that time period. Optimism about tax policy changes appears to be a contributing factor to the group’s recent momentum. It’s hard to be overly optimistic about substance and timing of a policy legislation given the healthcare experience, but lower corporate taxes will be highly beneficial to the banking industry. As large as many of these big industry players are, they are still primarily domestic oriented businesses that stand to benefit from lower corporate tax rates (just as small-cap stocks do).
