Financial stocks have soared ahead of tech stocks in year-to-date performance, boosted by Wednesday’s rally led by President Trump and on investors’ hopes of a more deregulation-friendly political climate ahead. This caused the stock prices of banks and securities companies to rise.
Financial Select Sector SPDR Fund XLF Up 30% in 2024, outperforming Technology Select Sector SPDR Fund XLKup 26% this year.
Small and medium-sized banks tracked by SPDR S&P Regional Banking ETF KREstocks also performed well, rising 13% following the election results, matching gains in the tech sector.
Financial stocks, which have lagged technology stocks for six of the past seven years, are now catching up, helped by new optimism about deregulation and M&A activity.
Analysts expect a significant increase in mergers and acquisitions (M&A) in the financial sector as the Trump administration returns to the White House.
“Under the incoming Trump II administration, we expect a more favorable environment for M&A, which could lead to further activity in the M&A space, which has been quiet over the past few years,” said Anthony Elian, CFA analyst at JPMorgan. “It will be done,” he said.
Lower regulatory barriers may pave the way for consolidation among smaller banks, while large financial institutions are expected to benefit from a more active capital market environment.
Related article: Local bank stocks record their strongest day in four years: Why analysts expect ‘some tailwinds’ from Trump policies
Devin Ryan, an analyst at Citizens JMP Securities, emphasized that a “congressional sweep” led by President Trump could significantly ease regulatory pressure on a wide range of financial and fintech sectors.
“While the ‘Trump trade’ had already begun in the markets in recent weeks, the president’s landslide victory and, perhaps more importantly, the possibility of a landslide victory in Congress has added fuel to the stock market movement.” Ryan explained.
For fintech companies, this shift could ease recent regulatory scrutiny, particularly in areas such as connections to traditional banks and practices overseen by the Consumer Financial Protection Bureau (CFPB). Companies involved in digital assets will further benefit as regulatory clarity opens the door to new market entrants and increases participation in the industry.
“Digital assets could probably be the biggest winners of all,” Ryan said, adding that he expects sentiment in the sector to “improve significantly from here.”
Ryan suggests that the political landscape is changing in a more favorable direction for cryptocurrencies, with policymakers beginning to recognize the economic and electoral importance of pro-cryptocurrency sentiment.
The expert is particularly bullish on several major companies in the financial sector.
Among asset management companies and individual brokers looking to take advantage of the wave of deregulation, Citizens JMP Securities has the following stocks to watch most closely:
In the fintech space, Ryan foresees significant benefits for digital asset players and platforms with strong footholds in crypto and private markets. Here are his recommendations:
Ryan said Robinhood has the potential to expand its crypto offerings and strengthen customer engagement, while Forge Global is poised to benefit from rising sentiment in private markets.
Coinbase, the largest US cryptocurrency exchange, stands to benefit from clearer regulatory guidelines and greater acceptance of crypto assets.
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