A sector that has gained 24 percent in barely seven weeks would seem primed for a pullback. But for banks, there looks to be room to run yet.
After trailing the market for much of the nearly eight-year bull run, financials only recently have become outperformers. Their massive runup since the Nov. 8 election has given the group about a 230 percent gain since the financial crisis lows in early 2009.
However, banks remain well-below their precrisis highs. And with an incoming administration expected to roll back some key regulations and interest rates on the rise, the momentum may be just starting to build.
"We believe the group still has room to run as rates move higher, the trading environment improves, modest deregulation decreases company-specific risks, and the U.S. sees better nominal growth aided by a strong U.S. consumer," analysts Brian Kleinhanzl and Michael Brown at Keefe, Bruyette & Woods wrote in a recent research note.
The trade is based on more than momentum or a relief rally.