It’s like the rally never happened.
Bank stocks are now cheaper, relative to the market, than they were before the election, as investor giddiness over tax reform and financial deregulation hits a political reality in which neither seems all that likely.
The KBW Nasdaq Bank Index is trading at a price-earnings ratio that’s just 72% of the S&P 500′s, versus 76% on Oct. 31, according to KBW analysts. That ratio got as high as 89% in late January as the Trump administration hit the ground running.
The KBW Nasdaq Regional Banking Index is trading at 87% of the broader market, versus 91% before the election.
Of course, in terms of price, bank stocks are still well ahead of where they were prior to the election. The KBW Bank index is up 20% since Nov. 8 versus a 13% gain for the S&P 500. And some bank stock remain well ahead of both: Bank of America shares have notched a 33% gain.
Still, most of those increases came in the immediate wake of the election. Returns have tapered off of late: Financials are the third-worst performing sector in the S&P 500 this year, with most big banks coughing up about half of their peak post-election gains.
The Trump administration has made little progress on initiatives that would jumpstart bank stocks, such as tax reform and Dodd-Frank rollback. And low volatility continues to take its toll, with several CEOs signaling last week that trading revenues were likely to be lower in the second quarter.
It’s a remarkable reversal. Financials were the S&P 500′s best-performing sector during the fourth quarter. Goldman Sachs, perceived as the biggest beneficiary of a lighter regulatory touch in Washington, hit a new all-time high. (Wall Street executives, it should be noted, took the opportunity to sell more than $100 million worth of stock in the weeks following the election.)
Still analysts at Keefe, Bruyette & Wood smell a bargain in the whipsawed stocks: “It is hard to argue for further underperformance for the sector, [given that] interest rates are higher and regulation isn’t getting worse.”
June 06, 2017 at 01:32AM
from Liz Hoffman
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