“What looked like a ‘pop’ last week has indeed become a rotation, driven by Trump’s polling/policies ... Of all the potential moves floated by the 2024 Trump team, we have the greatest confidence in a more business-friendly regulatory environment.”

 “Banks’ macroeconomic backdrop is already improving with the Treasury curve beginning to steepen, the pace of mergers and acquisitions accelerating, and consumer credit in-line with expectations.”

 “Bank stocks are trading at a significant discount. He expects the group’s relative price to earnings ratio will rise from about 50% to about 60% in the near term.”

 “Banks stocks rose 54% in 1995 (+34% S&P) on the back of a Fed pause following 250bp in rate hikes. While we recognize that no two periods are the same, the combination of discounted valuations and investor comfort around EPS outlooks coming out of 2Q24 prints could set the stage for a sustained bounce into U.S. elections.”

 “Banks hurt by higher funding costs, and/or perceived commercial real estate (CRE) risks should react positively. We highlight Buy-rated Western Alliance-WAL, Neutral-rated New York Community-NYCB as two banks that could particularly benefit from lower rates.”

 “We could be at the peak for reserves (we conservatively model a 2bp increase) and any additions to loan loss reserve ratios are likely driven by shrinking balances. We expect the focus to be on 2H net interest income guides which should be decent given tailwinds from fixed rate asset re-pricing, some pick-up in loan growth and decelerating increases in deposit costs.”

 “The top banks are expected to borrow more than they usually do after they post earnings as they take advantage of falling yields and get ahead of upcoming US elections that could potentially bring market turmoil.”