Big-bank stocks could be ready to make a move after a five-month run of doing pretty much nothing, according to a Goldman Sachs analysis.
A surge in dividends and share buybacks coupled with growing prospects of regulatory rollbacks are bolstering the case for the largest financial institutions, analyst Richard Ramsden said in a research note.
After surging nearly 30 percent following Donald Trump's Nov. 8 presidential election victory, bank shares have traded in a range since mid-February. Investors have cooled on the sector as interest rates have not gone up as much as anticipated and Trump's legislative agenda has stalled in Congress. For the year, the KBW Nasdaq Bank Index has risen nearly 4.5 percent and is underperforming the S&P 500's 10.9 percent gain.
However, Ramsden thinks the market is underestimating the gains banks could reap from deregulation that is still likely to come, albeit delayed. The analysis suggests that the initial pro-Trump bank rally came with a 12 percent premium baked in on deregulation. Since then, he estimates, that premium has fallen to 2 percent.
"A macro model of bank equity performance based on S&P 500 and interest rates
suggests that very little optimism regarding deregulation is currently being priced by
bank shares," he wrote. "Given how small this premium is, if we see further
progress on deregulation or on corporate tax reform, we see potential upside for the