Monday, 5 December 2016

Wall St ahead: Small banks rally pauses but may not be over yet

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The rally in regional U.S. bank stocks that followed last month's election of Donald Trump may not be over, but investors may have to wait for policy to take shape for the massive move to extend further. The S&P 600 index of small-cap banks has surged more than 20 percent since Trump's surprise Nov. 8 victory, while their large-cap peers on the S&P 500 index have jumped over 17 percent. Investors booked profits on Friday, with the small-cap index down 0.8 percent and the larger banks dropping 1.1 percent. 

Smaller lenders could potentially add as much as 40 percent to their fourth-quarter 2017 earnings if Trump's promises of tax cuts and regulatory changes materialise, according to Sandler O' Neill analyst Brad Milsaps. But Milsaps has not changed his official estimates to reflect this possibility as he is waiting for confirmation that those policy changes will happen. 

Trump is scheduled to take office Jan. 20. His Treasury Secretary nominee, Steven Mnuchin, on Wednesday criticized the Dodd-Frank banking regulation act saying that it inhibited bank lending, potentially implying a willingness to try to change regulations to help boost that revenue source.

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