According to Anton Schutz of Mendon Capital Advisors, the shares of US major banks showed resilience following their reporting of third-quarter results. This momentum could continue into the rest of this year or even 2025.
He sees more upside potential for banks, especially as historically they have performed better when a Republican government is in power.
Recent polls indicate that Donald Trump has gained ground against Kamala in the presidential election of 2024, which is encouraging for investors.
Since the beginning of 2024 the Dow Jones US Banks Index is up approximately 25 percent, a strong showing in this sector.
Why are bank stocks performing better under a GOP-led government?
In the past, Republican governments have tended to reduce regulations. This has allowed banks such as JPMorgan Chase, Wells Fargo and Goldman Sachs to enjoy higher stock values.
The regulatory environment was a major factor in the significant rise of bank shares when Donald Trump became president in November 2016
Individual factors, in addition to political tailwinds that may be present, could also drive gains for big banks.
Wells Fargo, for example, may have their asset cap removed soon, while an increase in M&A activity would benefit Goldman Sachs, Morgan Stanley, and others.
In an interview, Schutz told CNBC that JPMorgan’s stock price performance will be sustained if it continues its underpromise and overdeliver strategy.
These bank shares are also attractive because of their high dividend yields.
Protect prefers regional bankers over Wall Street giants
Schutz may be optimistic about Wall Street, but he thinks regional banks are even more valuable at the current rates.
Schutz, speaking on CNBC’s “Worldwide Exchange,” expressed his optimistic outlook about regional banks. He noted that the discount they trade at is unprecedented, compared with both their historical and broader markets.
In many cases regional banks trade at a price to earnings (P/E), which is a single-digit multiple. They are therefore potential targets for takeovers. The smaller banks will have better future earnings, and more M&A possibilities.
He noted as well that possible interest rate reductions could benefit regional banks.
Federal Reserve has recently cut its interest rate key by 50 basis points. It also announced plans to reduce it by another 50 basis points by 2024. This could help regional banks.
What’s next after big banks report Q3 earnings? This post may change as new information unfolds
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