Why major banks JPMorgan Chase, Bank of America and Wells Fargo rallied in November

Shares from “too big to fail” major banks JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC)And Wells Fargo (NYSE:WFC) According to S&P Global Market Intelligence, all rose sharply in November, with their stocks rising 12.5%, 13.6% and 17.3%, respectively.

All three stocks had reported gains in October, but the election of Donald Trump and Republican majorities in both the House and Senate on November 5 sparked a fire in virtually all financial stocks, with the largest and most highly regulated banks being some of them recorded the biggest gains.

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In the wake of the 2008 financial crisis, U.S. and European regulators introduced a series of new regulations for banks, particularly large “too big to fail” banks. These regulations required large banks to hold significantly more capital in the event of a severe economic downturn.

However, the rules also meant that banks were prevented from lending as much as possible, and to a significant extent. JPMorgan CEO Jamie Dimon has long believed that post-2008 regulations went too far, preventing large banks from lending about 100% of their deposits to only about 65% of their deposits.

But regulatory relief could not only benefit large banks when it comes to lending. The current chairwoman of the Federal Trade Commission, Lina Kahn, is also rather opposed to mergers and acquisitions and fights almost every planned merger of a company of a reasonable size. If resistance to dealmaking subsides and Kahn is removed, there could be more M&A activity.

All three of these banks also have large investment banking segments, so these segments would benefit from M&A relief from a new FTC director. It’s likely that any new replacement for Kahn would weaken the agency’s resistance to M&A deals.

Ultimately, a Trump administration and Republican majorities in Congress are likely to at least maintain the reduced corporate tax rates that were established in the Tax Cuts and Jobs Act of 2017 and were set to expire next year. U.S. banks are typically full corporate taxpayers, so the prospect of continued low taxes also allowed investors to enjoy higher profits with greater certainty next year and beyond.

The financial sector was actually the best performing sector in global markets this year, even outperforming the technology sector amid all the AI ​​hype.

This can be attributed to much lower starting valuations, the prospect of lower interest rates after a few years of high inflation and now the new government’s acceptance of regulatory relief.

The story continues