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. Regional banks are among the stocks most positively correlated to rising interest rates because higher rates improve net interest margins.
“While a more favorable environment bodes well for bank profits, after the recent rally, many small bank stocks already appear to reflect better times ahead. Some profit-taking in the sector may be in order,” according to Barron’s.
Investors have added $280.3 million to KRE following Election Day.
Politics are also boosting bank stocks. President-elect Donald Trump’s official transition website stated that the “financial Services Policy Implementation team will be working to dismantle the Dodd-Frank Act,” which was signed into law by President Barack Obama in 2010 to obviate another financial downturn. The law increased the burden of banks to safe guard against another meltdown event and forced many to greatly reduce exposure to riskier assets, which have also dragged on the financial sector’s bottom line.
For more information on the banking sector, visit our financial category.