The Financial Select Sector SPDR (NYSEArca: XLF), the largest financial services exchange traded fund, is up 6.3% year-to-date, bringing its one-year gain to almost 40%. As has been widely noted, politics are playing a part in lifting the financial services sector, the second-largest sector weight in the S&P 500.
Some on Wall Street are buying into the notion that President Donald Trump’s efforts will support more upside for the sector.
The Trump administration’s expansionary policies would be especially beneficial for banks since the segment is sensitive to the overall economy. Moreover, the expansionary policies have fueled bets of increased Federal Reserve interest rate hikes to rein in a potentially overheating economy and rising inflation, which further supports lending revenue and their bottom line among bankers and insurers.
Some analysts believe investors’ new found faith in the financial services sector will ultimately be rewarded. XLF and rival financial services ETFs have been bolstered this year after President Donald Trump revealed plans to scale back 2010 Dodd-Frank legislation, which increased regulations on banks and financial services companies following the global financial crisis.
“Changes in banking regulations could result in a big windfall for the industry, much of which would make its way into investors’ pockets, according to a Goldman Sachs analysis,” reports Jeff Cox for CNBC. “In a best-case scenario, slashed regulations would result in as much as $218 billion in excess capital which ‘could either be returned to shareholders or reinvested in the business,’ Goldman said in a report for clients this week.”
A Trump Administration executive order could pave the way for additional orders that would affect the postcrisis Financial Stability Oversight Council, the committee overseeing the winding down of a giant faltering financial company and the way the government supervises large financial companies that aren’t traditional banks.
“President Donald Trump has made easing banking restrictions a key part of his platform. He’s specifically looking to increase bank lending. Bank credit is up 38 percent, and commercial and industrial loans are up 36 percent since the beginning of 2010, but Trump believes lending is expanding too slowly and businesses are having trouble accessing credit,” according to CNBC.
Investors have added $1.54 billion to XLF year-to-date.
For more information on the financial sector, visit our financial category.