In the month’s leading up to Tuesday’s U.S. presidential election, there was ample speculation about which sectors and industries would prefer Democrat Hillary Clinton taking the White House.
Conversely, the primary takeaway about a victory by Republican Donald Trump was that such a scenario would pressure stocks.
While healthcare stocks and exchange traded funds got most of the attention as vulnerable to a Clinton presidency, financial stocks and ETFs such as the Financial Select Sector SPDR (NYSEArca: XLF) and the Vanguard Financials ETF (NYSEArca: VFH) were also highlighted as areas of concern on speculation Clinton would increase regulation of the financial services sector.
SEE MORE: Bullish Signs for Bank ETFs
ETFs like XLF appear to be at peace with Trump pulling one of the most stunning upsets in modern American political history.
XLF and rival financial services ETFs surged Wednesday, an arguably stunning move considering that in the wake of Trump’s victory, markets have all but decided that the Federal Reserve will not be able to raise interest rates in December.
With a steepening yield curve, or wider spread between short- and long-term Treasuries, banks could experience improved net interest margins or improved profitability as the firms borrow short and lend long.
Heading into this year, many market observers expected four Fed rate hikes, a number that subsequently dropped to two and now, in the eyes of some experts, zero. Higher interest rates would help widen the difference between what banks charge on loans and pay on deposits, which would boost earnings for the financial sector.
Related: Financial Sector ETFs Maintain Momentum
“Broad implications for financials: We think the main result of Donald Trump’s election will be that Trump will be able to appoint regulators who are more industry friendly than regulators appointed by President Obama. The regulatory implications are more important than what might come out of Congress but are broadly positive for financials in our view,” according to a KBW note posted by Ben Levisohn of Barron’s.
[related_stories]Trump has said he would “dismantle” financial reform, or the Dodd-Frank financial reforms, that have caused big banks to take on increased capital requirements to obviate another depression event associated with high-risk debt.
“We think SEC Chairman Mary Jo White might resign before her term ends. We do not think White has been bad for investment banks but we thought possible Clinton nominees would be a negative for the industry because we expected Clinton would nominee an ally of Elizabeth Warren to the SEC chairmanship,” according to the KBW note featured in Barron’s.
For more information on the banking sector, visit our financial category.
Financial Select Sector SPDR
