There are many reasons to love bank stocks now, Jefferies says

Published Wed, Jul 5 20179:42 AM EDTUpdated Wed, Jul 5 201710:10 AM EDT

Key Points

Positive results from the Fed's stress tests seen boosting financial stocks.
Highlights shares of Huntington, BofA, US Bancorp, Keycorp.

Jefferies is encouraging investors to buy U.S. financials in light of recent stress-test successes and fading regulation under the Trump administration. The firm highlighted Huntington Bancshares , Bank of America , US Bancorp and Keycorp as favorite stock picks. The Fed's 2017 Comprehensive Capital Analysis and Review stress-test results were positive, with an average total capital payout ratio of 95 percent and average capital return yield of 7 percent. But Jefferies chief global equity strategist Sean Darby notes additional reasons for optimism. "Perhaps the most important change is the recently published US Department of the Treasury report," Darby wrote in Wednesday's note. "This is the first of four reports that will address President Trump's plan to overhaul Dodd-Frank and other financial regulations that were introduced post the Global Financial Crisis." The Treasury Department's report, entitled "A Financial System that Creates Economic Opportunities," includes calls for cutbacks in crisis regulation, changing the stress test to a two-year cycle, and modifying regulation to be "efficient, effective, and appropriately tailored," according to Darby. Unlike the health-care bill, the current financial and banking regulatory proposals do not rely on Congress, but largely on appointees chosen by Trump, Darby noted. In a recent interview on CNBC's "Squawk Box," Treasury Secretary Steven Mnuchin reaffirmed his commitment to "massive tax reform," an overhaul Wall Street is eager to see passed. While Republicans in Congress and the administration plan their next move, central banks worldwide are gradually reining in monetary policy and quantitative easing , slowly buoying yield curves. Last month, the Federal Reserve raised rates a quarter point in its efforts to wind down its balance sheet throughout the year. Wall Street remains largely split on whether the central bank will seek an additional hike in September as the Fed continues to face both low unemployment and weak inflation numbers.

Andrew Caballero-Reynolds | AFP | Getty Images

Jefferies is encouraging investors to buy U.S. financials in light of recent stress-test successes and fading regulation under the Trump administration.

The firm highlighted Huntington Bancshares, Bank of America, US Bancorp and Keycorp as favorite stock picks.

The Fed's 2017 Comprehensive Capital Analysis and Review stress-test results were positive, with an average total capital payout ratio of 95 percent and average capital return yield of 7 percent. But Jefferies chief global equity strategist Sean Darby notes additional reasons for optimism.