Markets continued to defy grim predictions of a Donald Trump-induced selloff on Thursday, with the Dow soaring to new highs. The biggest winners in the post-election advance: Wall Street’s largest banks.
Stocks in some of the biggest financial firms in the world, including Goldman Sachs, Morgan Stanley and JPMorgan Chase are rocketing higher after Trump’s shocking win on hopes for a lighter regulatory hand and the big role that experienced Wall Street veterans could play in the new administration.
“The pre-election narrative was wrong,” said Christopher Whalen, head of research at Kroll Bond Rating Agency. “We all assumed we were entering an era of left-wing democracy. But now we have a pro-growth GOP president and a pro-growth GOP Congress and we have to completely reset the narrative.”
Shares in Goldman were up about 9 percent as of midday Thursday following the election. Morgan Stanley was up 10 percent and JPMorgan Chase nearly 9 percent, helping drive the broader market higher.
“Banks are rising because of the likely relaxation of Dodd-Frank and other banking legislation which has been expensive and burdensome,” said Douglas Kass, founder of Seabreeze Partners, who has written a book on the sector and covered it for decades. “And bank stocks right now are cheap and undervalued.”
The gains came as markets rallied back from a huge overnight selloff as Trump’s victory appeared increasingly assured Tuesday night. The Dow is now up about 2 percent since Trump’s win, defying warnings from academics and traders that his victory over Hillary Clinton would spark a market meltdown.
Big banks are performing better than the broader market for several clear reasons, experts say. Investors are no longer worried that an ascendant liberal wing of the Democratic Party, led by Elizabeth Warren, will impose tough new regulations including higher capital standards.
And Trump’s inner-circle of advisers is peppered with Wall Street executives not likely to push for a big crackdown on the financial industry. They include investor Steve Mnuchin, a former Goldman executive rumored for Treasury Secretary under Trump as well as billionaire investor Wilbur Ross and economist David Malpass, who worked at Bear Stearns for 15 years.
CNBC reported Thursday that some Trump advisers would like JPMorgan Chase CEO Jamie Dimon for Treasury secretary. Dimon has repeatedly said he does not want the job and nothing about that has changed, according to those who know him.
Still, the universe of names in play has investors in bank stocks giddy. And there remains some hope that direct appeals from Trump to serve the country could eventually sway those like Dimon who profess no interest in top jobs. During the George W. Bush administration, then-Goldman Sachs CEO Hank Paulson turned down the job of Treasury secretary. But when the financial crisis emerged he relented and agreed to serve.
But overall, the relief on Wall Street suggests many believe the era of bankers as national villains is coming to an end.
“It’s not just that there is now a Republican president, it’s that Republicans held the Senate and that’s quite important,” said Michael Mayo, a veteran banking industry analyst now at CLSA. “As of Nov. 8th, the financial crisis is over. As of that day we go from bashing banks to using banks to help facilitate economic growth.”
The gains on Wall Street are not limited to banks. The broader market is rallying on hopes that a Trump administration will push for big fiscal stimulus for the economy including large infrastructure spending.
The Dow was up more than 200 points in afternoon trading on Thursday, a second day of gains led by financial, pharmaceutical and defense companies all expected to fare well under Trump, who has proposed to shred thousands of existing regulations and cut taxes for businesses and individuals.
That’s caused an entire rethinking of the political paradigm on Wall Street. For now, fear over Trump’s erratic campaign persona has been eclipsed by hope for what he might achieve.
For bank lobbyists in Washington, the hope is less that Trump will immediately shred the 2010 Dodd-Frank financial reform law — though some hope he will — but that all of the new scrutiny and tougher regulations they feared from a Clinton presidency and a Democratic senate is now gone.
“People are realistic about getting rid of existing regulations,” one top bank lobbyist said on Thursday. “But at least the piling-on and fresh attacks seem like they will go away.”
The advance in bank stocks also reflects that the biggest firms built up heavy capital cushions and restructured their balance sheets following the crisis and are in much stronger shape than they were eight years ago.
“Banks have record capital and liquidity now and they can shift from being on defense to going on offense,” Mayo said. “For the last several years they played defense by adding capital and liquidity and dealing with regulators. Now they can move back to offense and deploy some of that extra capital.”