Why Bank Stocks Rallied 35% Today

Discussing the potential impact of a Trump presidency on the stock market, I highlighted a number of sectors that should see positives, banking among them. 

Today, the banking sector rallied over 35% as a group, reversing their previous YTD loss to a significant gain. It was the single biggest one day increase since the financial crisis of 2009.

The markets are betting on a more friendly regulatory environment under Donald Trump, which is ironic considering almost all Wall Street supported Clinton but that’s a different matter. Aside his regulatory policies, he also plans to lower tax rates across the board and also go on an infrastructure spending spree all of which are expected to stimulate the economy and stoke inflation. Finally, there’s the $2.5 trillion parked by American corporations which he plans to lure back with a one time 10% tax rate. 

All of these expectations led to a spike in the bonds markets today as people sold off the relative safety of the bond market to other asset classes (industrial metals, stocks, real estate). That led to 30 treasury rates crossing the 3% mark for the first time since January. That also means that banks interest incomes are about to climb which is even better for the sector as well. 

So that’s why stocks rallied. There are other implications of a Trump presidency for the country’s economy including a potential debt overhang that might end up slowing the economy on the long term but that’s a story for another day.

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