One of the key reasons to own bank stocks has been in anticipation that President Donald Trump would roll back financial crisis regulations, and enable banks to take increased risks and presumably make more money. But Goldman Sachs says bank stock prices indicate the “Trump Premium” has completely left the sector.
indicate the “Trump Premium” has completely left the sector.
“We find that 2.6% of this decline can be attributed to moves in macro assets, but 1.4% of the decline is left unexplained (a 2-standard deviation divergence). This underperformance was particularly significant because it represents the last bit of Trump Premium that was priced into the sector following the election, based on our analysis,” Marshall and team said.
The Goldman strategists told their clients that while banks are up 18% since the election, all of this performance can be explained by their sensitivity to equities and rates, suggesting investors are no longer pricing a benefit from reduced regulation.
Darker clouds are hanging over Bank of America (BAC), Citigroup (C), Goldman Sachs (GS), J.P. Morgan (JPM), Morgan Stanley (MS) and many others. Keep an eye on the Financial Select Sector SPDR ETF (XLF) that hedge fund managers closely follow as a proxy.