Why Are Financial Stocks Like American Express, Synchrony Financial, and Huntington Bancshares Soaring Today?

Like bank and credit card stocks American Express (AXP 6.53%), Senkron Finance (SYF 18.34%)And Huntington Banks (HBAN 11.90%)As of 23:49 on Wednesday, it rose rapidly, up 6.3%, 17.8% and 11.8%, respectively.

banking sector It was largely removed last night following the election of Donald Trump and the Republican takeover of Congress. The overall rally in financial stocks appears to be driven by excitement at the prospect of further financial deregulation; Financial stocks perceived to be the most “risky” are rallying.

Big movements in banking and credit card stocks

The prospect of Trump becoming President and a Republican term in Congress raises the possibility of a rollback of regulations and consumer protection measures put in place after the 2008 global financial crisis and aggressively enforced under the current administration.

Last year, for example, the Biden Administration proposed reducing excessive “unnecessary” fees such as bounced check and overdraft fees and directed the Consumer Financial Protection Bureau (CFPB) to make it easier for consumers to “unbank” themselves. “As well as other measures aimed at protecting consumers from certain banking charges. But a change of administration is likely to either reverse these regulations or prevent them from coming into force.”

Credit card companies are some of the largest fee chargers in the banking industry. During American Express Synchrony Bank, which was expected to benefit from regulatory rollbacks and typically issues private-label credit cards for other brands and thus appeals to more lower- and middle-class customers than American Express, rebounded even further. Sync super low valuation The fact that it was only 8x the earnings at the start of the day was also a factor, and was probably at least partly due to this regulatory mandate. That’s why the stock rose so significantly.

Finally, on regulation, Republicans may seek to reduce capital cushion mandates. This would allow banks to use more of their capital for lending and shareholder returns, potentially boosting earnings growth.

Image source: Getty Images.

Apart from banking deregulation, there is also likely to be relief on the merger and acquisition front. The Biden Administration is known to be quite aggressive in blocking mergers. Therefore there may be more connections American regional banking systemBecause the US banking system is still more fragmented than many other countries. Huntington Bancshares is valued at $25 billion market value is a regional bank and may be the acquirer or acquired party.

Finally, there is also the idea that Trump’s presidency could lead to higher public deficits, thus higher interest rates and inflation. The post-pandemic period of inflation was not good for banks and was thought to potentially lead to recession; But a higher interest rate environment without a recession could theoretically lead to higher net interest income for banks and credit card companies.

But there’s also reason to be careful

While financial sector investors applaud today’s news, investors need to keep in mind the double-edged nature of deregulation and higher interest rates on financial companies. While it is true that too much regulation can hinder growth, innovation, and purchasing activity in the banking industry, too little regulation can also lead to misconduct or reckless behavior by bankers.

Remember, deregulation was part of the reason behind this situation. Great Financial Crisis of 2008A period when highly leveraged banks succumbed to the decline in the housing sector. That’s why bank stock investors need to keep their eyes open for the possibility of careless management behavior or runaway inflation. Both are risks that will spoil the party investors are enjoying today.