U.S. bank stocks are up 32% this year, and the banking industry is bullish on a repeat of 30 years ago next year.
When U.S. President-elect Donald Trump rang the bell for the opening of the New York Stock Exchange, Goldman Sachs CEO David Solomon, Citigroup CEO Jane Fraser and other senior executives of major Wall Street banks were invited to watch and burst into cheers before ringing the bell.
With 2024 coming to an end, these Wall Street investment banks do have a lot to cheer about: finally out of the slump of the previous two years, trading and investment banking business warmed up; interest rate levels have been much lower than a year ago; tracking the overall trend of the U.S. banking stocks KBW Bank Index has risen by about 32% this year, and with the opening of the Trump 2.0 era, bank regulation will also be relaxed again.
Of all the investment banks, Goldman Sachs, which relies heavily on its Wall Street-centered investment, trading and wealth management businesses, has particularly benefited, with shares soaring since Trump's election, accumulating a 50% gain over the past 12 months.JPMorgan Chase, U.S. Merchant Bank, Citigroup, Wells Fargo and Morgan Stanley are also all up 5-12% since the election through the 20th.
What's more, some market and industry insiders expect this year's rally to be just the beginning, with bank stocks on track to repeat their 1995 run in the upcoming 2025.Then-Federal Reserve Board Chairman Grynspan cut interest rates sharply, causing the U.S. economy to have a soft landing.Then-President Clinton also deregulated the banking industry, signing a federal law in 1994 that removed restrictions on banks opening branches across state lines, laying the groundwork for banking consolidation.
This period of consolidation eventually gave rise to banking conglomerates such as JPMorgan Chase, Wells Fargo, Mercantile Bank of America, and Citigroup, with operations spanning the east and west coasts of the United States. KBW bank index rose more than 40% that year, significantly more than the Stamp 500 index, the next two years also continuously outperform the market.
Wells Fargo analyst Mayo (Mike Mayo) pointed out: "History is unlikely to repeat itself, but it may 'attach'."He doesn't expect bank stocks to do as well next year as they did in the 'mystery year', but he does see many similarities.In the three historical rate-cutting cycles (1995, 1998 and 2019) in which the Fed cut rates and did not lead to a recession, bank stocks initially sold off after the first rate cut, but then began to rebound and outperform the historical indexes in the following weeks, he analyzed.
Wall Street also has high hopes that the Trump 2.0 era will lower the capital rules in the proposed U.S. version of Basel III.Last year, the U.S. banking industry consistently resisted opposition during the proposal's development and vote, even hinting at launching a class-action lawsuit if regulators didn't do what the industry wanted.In September of this year, the banking industry scored an initial major victory when the supervisors said they would lower the capital requirements in the proposal.