Banks Poised for Outperformance Amid "Trump Trade" Surge
- Wells Fargo has suggested that it's an opportune moment to invest in banks, interpreting the recent market movements as a reflection of changing political tides.
- The Financial Select Sector SPDR Fund saw a notable increase of 3.7%, marking the banking sector's best performance this week.
- This bullish perspective on banks is framed within a broader context of potential political shifts associated with Donald Trump's influence.
In a recent analysis, Wells Fargo predicts a significant outperformance for banks in the near term, driven by the resurgence of the "Trump Trade." This market shift follows the attempted assassination of former President Donald Trump, which has seemingly bolstered investor confidence in his potential return to the presidency. As a result, there has been a notable rotation away from mega-cap technology stocks towards small-cap and cyclical stocks, with banks leading the charge. The Financial Select Sector SPDR Fund (XLF) has seen a remarkable 3.7% increase this week, marking it as the top-performing industry. This uptick follows a series of positive second-quarter earnings reports from major banks, including Bank of America, Morgan Stanley, and Citigroup, which all exceeded expectations. Wells Fargo analyst Christopher Harvey noted that the market's movement reflects a broader trend influenced by Trump's polling and policies, suggesting a shift towards a more business-friendly regulatory environment. Harvey has adjusted Wells Fargo's sector recommendations, replacing health care with banks, citing confidence in their potential for outperformance. He highlighted an improving macroeconomic backdrop, characterized by a steepening Treasury curve, an uptick in mergers and acquisitions, and consumer credit aligning with forecasts. With bank stocks currently trading at a significant discount, Harvey anticipates a rise in their price-to-earnings ratio, projecting a potential 15% outperformance over the next one to three months, reminiscent of the post-election surge in 2016.