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Financials rally will continue, with big banks the big winners, expert says

Financial stocks are going to continue soar thanks to an improving economy, less regulation and higher interest rates, experts told CNBC on Monday.

"This is all about credibility and confidence … as the economy continues to recover, financials are going to be a big part of it, especially loan growth," said Brian Belski, chief investment strategist at BMO Capital Markets.

Plus, the sector usually trades in tandem with the market, but this latest bull market has not been led by financials, he pointed out.

"We think there is still gross, gross underperformance of financials to get caught up on."

In fact, Belski told "Power Lunch" he believes S&P 500 financials have more than 30 percent higher to go in terms of reaching any kind of fair value.

Pedestrians pass a JPMorgan Chase bank branch in New York.
Michael Nagle | Bloomberg | Getty Images
Pedestrians pass a JPMorgan Chase bank branch in New York.

Liz Ann Sonders, chief investment strategist at Charles Schwab, also isn't concerned about the sector's recent rally because it has underperformed for eight years.

"Leverage ratios are down, you're looking at net interest margins rising, so it continues to be one of our favorites," she told "Power Lunch."

Financials have been climbing higher since President-elect Donald Trump's surprising win Nov. 8, with many investors banking on less regulation during his administration.

Steven Eisman, the strategist portrayed by Steve Carell in "The Big Short," told CNBC earlier Monday that he believes the financial system will be at least partially deregulated under Trump, and said he's as long as he can be in financial stocks.

"I think over the next couple of years there will be more leverage, and this will be a golden age of investing in financial stocks," added Eisman, whose bet against the subprime mortgage market prior to the 2008 financial crisis was depicted in the 2015 movie.


Banks will also benefit from higher interest rates from the Federal Reserve.

Last Wednesday, the Federal Open Market Committee raised its target range from a range of 0.25 percent to 0.5 percent to 0.5 percent to 0.75 percent. It also indicated it expects three rate hikes in 2017.

Belski cheered the ending of the "bull market in compliance" and called higher rates "frosting on the cake."

"The cake part of financials is all about asset gathering and economies of scale. That's why the big banks in particular with things like asset management and wealth management are going to be the big winners over the next three to five years," he said.

For Gabriela Santos, global market strategist at JPMorgan Funds, the extended rally in financials comes down to growth and credit.

"It's finally families being willing to take on more credit and banks being willing to lend again and I think that's just the beginning of the story," she said in an interview with "Power Lunch."

Santos believes the economy is rebounding and the fundamentals are pretty solid, especially on the consumer side.

— CNBC's Jeff Cox and Matthew Belvedere contributed to this story.