Time to Buy Banks?
With a review of Dodd-Frank and interest rates set to rise further, it may be time to put bank stocks back on your radar.
For several years, banks have flown mostly under the radar, with capital restraints, increased regulation and post-recession wariness from investors suppressing equity prices. But the tide has been turning for the once-overlooked industry: As of this writing, the S&P 500 financial sector subindex has jumped 17% since the U.S. presidential election in November. That's a significant gain, considering in the three years prior the index only returned 22%.
One reason for the jump is the hope that a Donald Trump presidency will bring about regulatory change, which may lead to cost reductions for banks. Investors are also realizing that financial institutions are in a much better place today than they were a few years ago. Banks have cut costs, they're lending more, and they have money to spend. And of course, rising interest rates would only help their cause.
Bryan Borzykowski does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
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