Why Bank of America, Visa, and Capital One Are Ripping After a Trump Victory

Bank stocks surged after numerous publications and major television networks declared Donald Trump the winner of the election and the incoming 47th president of the United States. The SPDR S&P Regional Banking exchange-traded fund traded nearly 11% higher at 10:45 a.m. ET, the biggest single-day move I can recall while covering bank stocks.

Shares of the second-largest bank in the country, Bank of America (NYSE: BAC), traded nearly 7% higher. Meanwhile, shares of Visa (NYSE: V) traded nearly 4% higher, while shares of Capital One (NYSE: COF) had exploded by nearly 20% at one point this morning before paring some of those gains.

A better regulatory landscape for banks

I wrote last week that bank stocks would be one of the big beneficiaries of a Trump victory. While not exactly a campaign issue for either party, banking regulators under the Biden administration have been tough for bank stocks. They have delayed merger and acquisition approval times, and proposals regarding tougher capital and liquidity regulations have been an overhang on the sector for some time. Trump instituted deregulation for the sector during his first term as president. Republicans also flipped the Senate and could take control of the U.S. House of Representatives.

"Donald Trump is the candidate where you ignore what he says and focus on what you expect him to do," TD Cowen analyst Jaret Seiberg wrote in a recent research note, according to CNBC. "It is why he offers the promise of deregulation for financials as his regulators are likely to roll back much of the CFPB [Consumer Financial Protection Bureau] enforcement agenda and rethink safety and soundness changes for big banks."

Trump will also be able to appoint a new U.S. attorney general and new officials at the U.S. Department of Justice (DOJ), which could greatly benefit companies like Visa and Capital One. The DOJ under Biden has pursued several antitrust lawsuits on large companies in several sectors. It recently sued Visa for its debit card practices, claiming the company used unfair powers to charge transaction fees that it couldn't have in a competitive market. The New York Attorney General's office also recently launched a probe on Capital One's planned merger with Discover Financial Services and whether it violates state antitrust laws.

It's still early and I don't think anyone knows for sure how Trump will approach antitrust cases. However, with people like Elon Musk and JD Vance expected to have strong influence in the Trump administration, I find it unlikely that a Trump DOJ would be as aggressive with antitrust as the DOJ under Biden.

Several tailwinds for the industry

Up until recently, banks have struggled over the last couple of years. The sector dealt with an inverted yield curve in which the yield on short-term Treasuries exceeded that of longer-term Treasuries. This is bad for banks that generally borrow short and lend long. Now, the yield curve is steepening, which generally benefits banks. Lower interest rates should also help bring down deposit costs and accelerate investment banking activity.

Banks will also likely have much clearer visibility into final capital rules, which will allow them to accelerate share repurchases, and be able to move full steam ahead with mergers and acquisitions, a catalyst for the sector. All of these reasons lead me to believe that bank stocks are a buy right now.

Should you invest $1,000 in Bank of America right now?

Before you buy stock in Bank of America, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Bank of America wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $857,383!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of November 4, 2024

Discover Financial Services is an advertising partner of Motley Fool Money. Bank of America is an advertising partner of Motley Fool Money. Bram Berkowitz has positions in Bank of America. The Motley Fool has positions in and recommends Bank of America and Visa. The Motley Fool recommends Discover Financial Services. The Motley Fool has a disclosure policy.