Trump Victory Augurs US Banks Enhanced Profitably
US President Elect Donald Trump has greatly enhanced the outlook for US bank profitability, as he is laying the foundation for a steeper yield curve and financial deregulation.
Recognizing this, investors are acting with record 1-day inflows of more than $2.1-B into the Financial Select Sector exchange traded fund (NYSEArca:XLF) Thursday.
Financial ETFs are taking off after Donald Trump’s win, getting a 2X boost from deregulation and rising rates. XLF closed at 21.61 Thursday, +8.1% since the election and its best 2-session showing since Y 2009.
Donald Trump’s official transition website indicated that the “Financial Services Policy Implementation team will be working to dismantle the Dodd-Frank Act,” which was signed into law by President Barack Hussein Obama in Y 2010 with a goal to rein in big banks.
The market sees the banking industry as unleashed.
In addition, the steepening of the US Treasury yield curve, with longer-term yields rising more than those for short-term debt helps explain why financials have fared better than the S&P 500 Index at large.
Rising market-based measures of inflation expectations, in light of Donald Trump’s inflationary proposals, have fostered this steepening of the yield curve.
As banks are engaged in the business of maturity transformation, the widening spread between yields on short and longer term debt augurs well for net interest margins and profitability.
|NYSEArca:XLF||21.67||11 November 2016||0.06||21.47||21.7||21.4||134,954,500|
|HeffX-LTN Analysis for XLF:||Overall||Short||Intermediate||Long|
|Bullish (0.49)||Bullish (0.40)||Very Bullish (0.58)||Bullish (0.48)|
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