After years of lagging other sectors, bank stocks have been on a tear since last week's election, and the rally likely has more than just a cyclical rebound at its center.
Investors are betting that the industry will be perhaps the biggest beneficiary of a Trump administration, where regulations are bound to be eased and where billions or even trillions in new infrastructure spending will provide new opportunities.
"Now the industry is transitioning from defense to offense," Mike Mayo, research analyst and managing director at CLSA, said in an interview.
"This decade, banks have played more defense while they shore up their balance sheets, which are now the strongest in a generation," Mayo added. "But with the new pro-growth administration, banks are likely to transition to offense, where they redeploy excess capital and liquidity to facilitate growth."
Indeed, the industry has spent most of the seven or so years since the Great Recession ended both building its capital base and rehabilitating its reputation.
Almost all the banks meet capital requirements, but they have been reticent to engage in traditional lending activities while they remained under an uncertain and progressively tighter regulatory yoke. As that has been ongoing, banks have been storing cash at the Fed, which now holds $1.9 trillion in excess reserves.