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Core part of the ‘Trump trade’ is languishing

  • The financials sector rose in the weeks after the U.S. election, though it has barely moved year to date.
  • Some strategists see meaningful upside afoot for the group.
  • The sector is expecting earnings growth for the rest of the year, said Erin Gibbs, equity chief investment officer at S&P Global.

After surging in the weeks following the U.S. presidential election and becoming a defining facet of the so-called Trump trade, financial stocks have languished this year, having barely budged year to date.

Still, some strategists see meaningful upside on the horizon for the group.

"I think there's still some hopes for some of the banks, and the diversified financials, as well. They've both been sort of struggling for this year," Erin Gibbs, equity chief investment officer at S&P Global, said Thursday on CNBC's "Power Lunch."

Financials posted one of their best quarters of earnings ever for the first quarter — over 20 percent earnings growth — Gibbs said, and forecasted about 13 percent earnings growth going forward.

"Normally, we see estimates start to contract. So we're just looking at overall good strength for growth here for this sector," she added.

Furthermore, Gibbs said, "One of the big things we've seen is concerns about just how quickly we might see some of the reforms when it comes to Dodd-Frank. But the fundamentals are still looking great."

Concrete details have been relatively thin surrounding how exactly the Trump administration will go about reforming regulation in the financial services industry. President Donald Trump has said he plans to reduce and perhaps replace parts of the Dodd-Frank financial reform act, which more stringently regulated the industry after the financial crisis.

At the same time, Trump said he has looked into breaking up the big banks, therein reviving part of the now-repealed Glass-Steagall act that essentially separated commercial and investment banking activity.

At this juncture, it appears several crucial themes are stirring the banks, according to Max Wolff, market strategist at 55 Capital. The space is "exciting," he said, but also "fraught with a certain type of uncertainty."

"There's a big portion of the banking space that's going to become the next travel agents. They're going to get wiped out by technology; that makes people nervous," he said.

And the environment has been tough on a regulatory basis — but it's set to shift.

"We have the same administration saying we want to get all of these regulations off the banks' back, and the other one that we're going to push old-fashioned regulations and chop them into little pieces," he said, so it's hard to figure out what is going to happen.

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Brian Sullivan

Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

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