Bank stocks have been on a wild ride since the U.S. presidential election in November 2016, but there are concerns that the fuel for the recent rally could be drying up.
Street Talk is a new podcast hosted by S&P Global Market Intelligence. Click here to listen to the full episode.
For the inaugural episode of S&P Global Market Intelligence's podcast, Street Talk, we spoke with veteran bank analyst Nancy Bush on April 14 about the change in investor sentiment toward the bank group over the last five months. The podcast will cover fundamental, policy and technological issues driving performance of the financial institutions sector.
The possibility of major policy changes has been the topic du jour for financial institutions since Donald Trump's surprise victory in the election. The new president has promised corporate tax and regulatory reforms as well as stronger economic growth, all of which would help drive bank returns to the highest levels since the credit crisis. That hope brought many generalist investors back to the U.S. bank group, causing the sector to rally considerably. The SNL U.S. Bank & Thrift Index jumped more than 30% between the election and the beginning of March, but the sector has given back nearly half those gains as skepticism has grown over significant policy changes coming out of Washington, D.C.
Bush said that such significant swings in bank stocks usually depend more on macro factors than on policy changes. As doubts over the likelihood of reforms grow, Bush believes bank stocks will give back some more gains.
She discussed whether the first banks to report earnings have offered support for the run-up in valuations. We closed the discussion with a focus on longer-term trends, including the renewed focus on deposit pricing. Bush talked about the emergence of "mega" community banks and financial technology players, arguing that they could change the funding environment by serving as "serious competition" to the largest banks.