Wells Fargo Securities on Monday upgraded large-cap U.S. banks to overweight from market weight, citing the potential for corporate tax reform and deregulation to boost earnings for financial firms. The investment bank named Bank of America its top pick in the industry for 2017.
"We see up to 26% EPS [earnings per share] upside potential for the banks in 2018," equity analyst Matthew Burnell wrote in a note to clients.
Wells Fargo believes a combination of higher interest rates, faster GDP growth, lower corporate taxes and industry deregulation under President-elect Donald Trump could propel bank stocks to new highs in the months ahead.
Since Nov. 8 election, the S&P financial sector is the best performing industry group, up nearly 18 percent compared with a return of 6 percent for the S&P 500.