“But at the same time, policy uncertainty and trade tariffs have placed the market on edge, causing the longer end of the yield curve to fall by almost as much as the short end has risen. This negatively impacts banks’ net interest margins, or the difference between the shorter- and longer-dated rates,” according to CNBC.

Capital levels at major U.S. banks are viewed as solid. Additionally, the Trump Administration’s tax reform effort is seen as a potential catalyst for the financial services sector, but it remains to be seen if that effort will come to life. Some industry observers expect the tax reform would help banks boost earnings in significant fashion.

Still, trade war fears are weighing on the sector in the near-term. A full-blown trade war “could knock off as much as 0.3 percent to 0.4 percent off of gross domestic product growth in the U.S. by 2020, according to Oxford Economics estimates, so we agree with the caution here,” reports CNBC.

For more information on the banking sector, visit our financial category.

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