During the presidential campaign, candidate Donald Trump often criticized Wall Street and the banking system for its role in America’s financial difficulties.
On Friday, President Trump did an about-face of sorts. He embraced some of Wall Street’s brightest luminaries and did something that the financial industry has wanted for nearly seven years.
The president signed executive orders that begin the process of rolling back financial industry regulations.
With industry leaders such as Larry Fink, CEO of BlackRock (BLK), and Jamie Dimon, CEO of JPMorgan (JPM), gathered around him, Trump proudly put his signature on executive orders designed to dismantle Dodd-Frank.
The 2010 law was put in place as a response to the 2008 financial crisis. But critics say it stifles bank activity, and tightens bank lending.
Now, the Trump administration has essentially laid out at least the beginnings of a framework that’s aimed at undoing those regulations. The executive orders instruct heads of regulatory agencies to report back to him within 120 days with suggestions on ways to change existing financial regulations.
As you might expect, banking and financial stocks vaulted higher on the news. Now the question is who will likely benefit most, and what does that mean for investors?
Despite the rise in large-cap financial stocks Friday (and since Election Day), at least one group of analysts says that any banking deregulation is “no panacea for big banks.”
That’s the conclusion from sector analysts at Morningstar. In an article on the company’s website, Morningstar analysts offered up the following assessment of the Trump action:
We see Trump’s plans as an opening salvo in an effort to ease the regulatory burden on the nation’s banks. However, efforts to repeal or replace the law in its entirety will be far more difficult, and we don’t expect significant boosts to banks’ profitability in the near future as a result of the rule review alone.
I agree with the assessment that the “near future” isn’t likely to see a jump in bank bottom lines. After all, Washington’s wheels grind slowly, and any rewrite of the Dodd-Frank law will take time.
It also will cost the president some significant amount of political capital.
Yet that doesn’t mean financial stocks won’t continue to trade higher based on the expectation of a lightened regulatory burden.
After all, think about the run higher in not only financials, but in the major market indices nearly across the board since Election Day.
|The Financial SPDR (XLF) is up 13.5% since the U.S. election.|
Sure, the economic data has improved over the past couple of months (albeit slightly). But that’s not the reason for the buying.
The reason for the buying is all about the great expectations of growth that might be engineered by the Trump policies.
A rollback of Dodd-Frank and other financial industry regulations is a step in the right direction in terms of making that growth a reality. But there’s still a long way to go before we can actually start seeing corporate bottom lines benefit.
The same is true for the all-important corporate tax reform proposals.
Wall Street would love to see corporate taxes go to 20% from 35%. In fact, the Trump administration’s goal on this front is far more important than rewriting Dodd-Frank.
Yet so far, we’ve seen mixed signals on corporate tax reform, at least in terms of urgency.
Rumblings out of Washington point to as far away as 2018 for any real progress on corporate tax reform. And that’s not good news for bulls who hope the 2017 rally will continue.
So, is Dodd-Frank reform a good thing, and will it juice up the economy?
Generally, I say yes, but it depends on how the law is amended. It depends whether a rewrite helps banks lend more freely.
If lending does get easier, and banks are able to open up their vaults to borrowers, then that will be good for American business. The same goes for the economy at large, for banking and financial stocks — and, of course, for investors with exposure to these sectors.
What do you think financial industry regulatory rollback? Do you think it’s just what the doctor ordered for the economy … or does it open the door to another banking crisis? Let me know your thoughts by leaving me a comment on our website or by sending me an e-mail.
Super Bowl LI saw the Atlanta Falcons and New England Patriots tied at 28-28 when the clock ran out. This makes last night’s big game the first in history to go into overtime. The Patriots won 34-28, their fifth time taking home the Vince Lombardi trophy.
If you go by the Super Bowl Indicator, this means stocks could drop in 2017. In the past 50 years, when an old AFL team (now the AFC) won, the market closed in the red about 80% of the time. And this year, the Patriots represented the AFC.
As if on cue, markets opened — and mostly stayed — in the red today. The S&P 500 closed 5 points lower, or -0.2%, in Monday’s session.
Since a lot of traders seemed to take it easy today after a very exciting night, here are some game-related tidbits …
• More reasons why last night’s game was historic: No team has come back from greater-than-10-point deficit before. (The Falcons were ahead by as much as 25 points early in the game.) Plus, Tom Brady had more completions, pass attempts and passing yards than anyone else in Super Bowl history.
• The game was the best metered rating for Fox, although Nielsen ratings show this Super Bowl was slightly less-watched than the 2016 event, which attracted some 111.9 million viewers. The 2015 event (the last time the Pats played) attracted a record 114.4 million viewers, and 112.2 million watched the 2014 event. Nielsen says the 2017 game drew in 111.3 million viewers, with 117.5 million tuning in for Lady Gaga’s halftime show and 117.7 million tuning in to watch the final moments of the game.
• Some recent sportsball survey results: Two-thirds of Americans have a favorite sports team. And nearly 40% of Americans say football is their favorite sport to watch. Fifty percent of Americans say that a higher power rewards devout athletes, while 25% believe that a higher power has a role in determining the final score. As for politics, 58% of Americans say they aren’t bothered when pro athletes make public statements about it, but 40% are bothered by athletes who take a public position on a political topic. (PRRI.org)
• We may never know what was in the Tiffany & Co. (TIF) blue box that Melania Trump gave Michelle Obama on Inauguration Day. But the luxury jeweler’s flagship Fifth Avenue store, which is on the same block as Trump Tower, saw holiday sales fall 14% in part due to “post-election traffic disruptions.” This famed location generates 8% of the company’s sales. Total sales for the company were down 4%. TIF shares fell 2.5% today.
• Executive revolving doors. TIF just saw its CEO step down, not long after its CFO and head designer both left the company. Ralph Lauren (RL) also just saw its CEO step down last week due to creative differences with the famous founder himself. Five other senior executives at RL have also reportedly left in recent months. RL shares gained 0.5% today, after falling more than 12% to a six-year low on Thursday.
• Gold traded at a three-month high (+11.3 to $1,232) on concerns that President Trump’s economic concern among traders. Bullion prices are up 7% this year, and the SPDR Gold Trust (GLD) is in its longest stretch of gains (four days) since October.
Good luck and happy investing,
Uncommon Wisdom Daily