Much has been made of the lack of value in the U.S. equity market, but the financial services sector has continually been highlighted as one of the last vestiges of value in this aging bull market.
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.
Various data points suggest banks are indeed value plays.
“Banks and insurance companies make up around 26% of the S&P 500 Value Index, double their weighting in the S&P 500 Index,” according to a recent BlackRock note.
As conditions improve, the Federal Reserve will tighten its monetary policy to obviate an overheating economy. The central bank has already outlined plans to start winding down its trillion dollar balance sheet in October and left a December rate hike open.