Regional Bank ETFs Could Surprise

President 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.

Politics might be the lone remaining catalyst for the sector for a while and that could weigh on regional banks that were hoping for a more hawkish Fed.

The problem with that scenario, as was seen with financial services ETFs last week, is that markets are growing concerned with the Trump Administration’s ability to push through some of the bigger objectives on its legislative agenda, including tax reform and rolling back the Dodd-Frank Act. Those two goals are widely seen as positives for bank stocks.

“Nonetheless, regional banks may stand to gain the most among financials from regulatory easing and a more favorable macroeconomic environment—assuming both occur. Larger banks may still perform strongly in a reflationary environment and may serve as a portfolio diversifier,” according to BlackRock.

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