Related: Are Banks Fundamentals Still Strong?
Financials were also propped up by a rise in bond yields as higher interest rates typically widen the margin spread between bank loans and deposits. The spreads will further widen as the Federal Reserve has stated its intentions to raise interest rates in response to economic growth and rising inflation.
“As long as we continue to be in an interest-rate hiking environment, banks are going to continue to benefit,” Randy Frederick, Vice President of trading and derivatives for Charles Schwab, told Reuters. “Trade volumes were pretty solid in the early part of the quarter…generally outlook is pretty good for financials.”
Furthermore, the Trump administration has taken steps to lift some of the more onerous regulatory burdens placed on the bank sector after the financial downturn, and the regulatory reforms have yet to translate into higher returns.
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