As was widely reported late last week, bank stocks and financial sector exchange traded funds soared on news that President Donald Trump is actively moving to loosen the regulatory burden facing the S&P 500’s second-largest sector weight.
That includes a plan to rollback the 2010 Dodd-Frank financial-overhaul law, which was implemented in the wake of the global financial crisis.
Such an effort is believed to have potential benefits for regional bank stocks and ETFs, including the SPDR S&P Regional Banking ETF (NYSEArca: KRE), PowerShares KBW Regional Bank Portfolio (NYSEArca: KBWR) and the First Trust NASDAQ ABA Community Bank Index Fund (NasdaqGM: QABA).
Regional bank ETFs had already been a high-flying asset class following Trump’s stunning upset in the November presidential election.
Much of the bull case for regional banks depends on the Federal Reserve and interest rates. 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. Additionally, the Fed is hoping to raise interest rates as many as three times this year, an effort that could further support KRE and friends.