Why Donald Trump’s Re-election Propelled Bank Stocks to New Highs
Donald Trump’s victory in the U.S. presidential election is widely viewed as a positive development for the financial sector, particularly for banking institutions.
As a result, bank stocks experienced a notable rally on Wednesday. Both the KBW Nasdaq Bank Index and the S&P 500 Banks (Industry Group) Index climbed 10.7%, while the KBW Nasdaq Regional Banking Index rose by 13.5%.
On an individual level, major financial institutions such as JPMorgan Chase (JPM), Bank of America, Wells Fargo, Goldman Sachs (GS), and Citigroup (C) saw their stock prices increase between 8% and 14%. Regional banks also performed impressively, with many, including First Horizon (FHN), KeyCorp (KEY), and Zions Bancorporation, posting gains exceeding 15%.
The banking sector has had an exceptional year, driven by the economy’s resilience despite high-interest rates and a robust recovery in capital markets activities. Trump’s re-election has further fueled optimism for a prosperous 2025.
The KBW Nasdaq Regional Banking Index has surged 21.5% year-to-date, while the KBW Nasdaq Bank Index has soared 39.2%. In comparison, the S&P 500 Index has advanced 24.8%. These banking stocks have significantly outpaced the broader market and the Zacks Finance sector.
Three Key Drivers Behind the Surge in Bank Stocks
1. Relaxation of Regulations on Consumer Fees
Banks stand to gain from a more lenient regulatory framework. The Trump administration is expected to appoint new leadership across several federal regulatory agencies that oversee banks and other major financial institutions. Currently, the Consumer Financial Protection Bureau (CFPB) regulates consumer fee income for banks and aims to implement stricter rules on service fees. However, with new leadership, institutions such as JPMorgan, Citigroup, KeyCorp, and First Horizon anticipate fewer regulatory constraints. This shift could enhance their fee income, bolstering revenue that has been under pressure due to fluctuating net interest margins.
2. Reduced Antitrust Oversight
The administration’s stance on corporate mergers is expected to be more accommodative. This could result in fewer regulatory hurdles for large banks seeking merger and acquisition opportunities. Consequently, the investment banking (IB) divisions of major players like JPMorgan, Goldman Sachs, and Bank of America are poised to benefit. After a challenging period since 2022, the IB sector has shown signs of recovery this year, buoyed by improved macroeconomic clarity. Reduced antitrust scrutiny could pave the way for further growth in this segment.
3. Easing Capital Requirements
Following the 2008 financial crisis, large banks such as JPMorgan Chase, Bank of America, Citigroup, and Goldman Sachs were required to hold additional capital as a precautionary measure. In July 2023, U.S. banking regulators proposed a significant revision of the global capital framework, known as the Basel Endgame, aiming to increase capital requirements for the largest banks by nearly 19%. Although these measures were softened in September 2024, banks were still expected to maintain an extra 9% capital buffer to cover potential losses. With the Trump administration’s pro-deregulation agenda, banks are optimistic about further reductions—or even the elimination—of these additional capital requirements.
Outlook for Banks Under Trump’s Administration
The Trump administration’s inclination toward deregulation positions the banking sector for potential gains. Moreover, the Federal Reserve’s ongoing interest rate cuts are likely to boost net interest income (NII) for banks as their funding costs decrease.
However, the full impact of these economic changes will depend on the central bank’s actions. During the September FOMC meeting, officials signaled their intent to implement four rate cuts in 2025. Investors are now awaiting Fed Chair Jerome Powell’s remarks following the conclusion of the two-day meeting later today.
