Markets At Record Highs: 5 Bank Stocks To Bet On

It has only been a handful of days into 2018 and the markets are already touching record highs. It looks like the rally will continue for some time.

The Dow Jones Industrial index crossed the 25,000 level for the first time yesterday, while other two major indexes — the S&P 500 and Nasdaq also closed at all-time highs. The primary driving factor is the strong domestic economic data including better-than-expected ADP private sector payroll reading for December 2017, and robust manufacturing and services sector data.

Also, the FOMC Minutes from last month revealed discussions that the new tax act (which was not even finalized at the time of the meeting) will aid GDP given the increase in consumer spending, higher business investments and a steady decline in unemployment rate.

The tax act is expected to result in huge savings and cash repatriation for the companies. But only a few sectors/industries will continue to gain over the longer term, banks being one of them. 

Apart from this, the Fed has indicated three more rate hikes this year. This alone is sufficient to improve banks’ financial performance. But anticipated higher inflation driven by tax cut stimulus may lead the central bank to raise the interest rate at a faster pace, as economic growth improves further. Higher rates help banks in expanding their net interest margins, thus driving revenue growth.

All these indicate a stronger economy this year. With banks’ financials directly linked to the health of the nation, they stand out to be clear winners.

Further, reduction in stringent regulations might be implemented soon as part of President Donald Trump’s election promise. While no time frame has been outlined for the execution, the announcement of a bipartisan agreement has helped investors regain confidence. This will help banks in reducing regulatory compliance costs and will likely to lead to a wave of M&As for the banking industry.

Picking the Winning Banking Stocks