When Goldman Sachs (GS) CEO David Solomon received an invitation earlier this month to watch Donald Trump triumphantly ring the opening bell at the New York Stock Exchange, there was no doubt he would go.
Not only did the next US president come to Wall Street, but he gave Solomon, Citigroup (C) CEO Jane Fraser and a host of other business leaders the opportunity to meet and mingle with some of his Cabinet nominees on the trading floor .
Minutes before Trump’s bell rang, the crowd began cheering, “USA, USA.”
Solomon and other big bank bosses certainly have a lot to cheer about as 2024 draws to a close.
Deal-making and trading are on the rise, interest rates are significantly lower than a year ago, and the prospect of looser banking rules seems possible as a new Republican administration is poised to take over the White House. Bonuses are also expected to increase once checks are cut in the new year.
No bank is better positioned to benefit from this shift than Goldman, which relies heavily on its Wall Street-focused investment banking, trading and asset management businesses. The share price has soared since Trump’s election, and is up 50% in the last twelve months.
But it’s not the only bank rising higher. Since the election, shares of JPMorgan Chase (JPM) and Bank of America (BAC), Citigroup, Wells Fargo (WFC) and Morgan Stanley (MS) rose between 5% and 12% on Friday.
“A lot of bankers are dancing in the streets,” JPMorgan Chase CEO Jamie Dimon said days after Trump won the election.
JPMorgan, the nation’s largest bank, is among those having a banner year. Analysts expect the bank to break another record for the highest profits in U.S. banking history. Investment banking revenue is expected to rise 45% in the fourth quarter.
The hope is that this current rally could be just the start of a bull run that banks haven’t seen in more than a generation.
Some predict that 2025 will be a repeat of 1995, when bank stocks soared following rate cuts by the Federal Reserve, a soft landing engineered by then-Central Bank Chairman Alan Greenspan and a deregulation stance by then-President Bill Clinton.
A federal law signed by Clinton in 1994 ended restrictions that prevented banks from opening branches across state lines, paving the way for a period of consolidation that would eventually lead to coast-to-coast empires which were amassed by JPMorgan Chase, Wells Fargo, Bank of America and Citigroup.
In 1995, an index tracking the banking sector rose more than 40%, outperforming the S&P 500 (GSCP). This outperformance would continue for another two years.
The current year rivals 1995 in investor exuberance. The KBW Bank Index (^BKX) is up 32% year to date, outperforming the major stock indexes.
To keep the party going, “election optimism will have to translate into bank revenue,” Barclays analyst Jason Goldberg told Yahoo Finance.
“The market is pricing in a further increase, so that is certainly something to take into account,” he added.
In a hopeful sign, investment banking is on the rise again this year, ending a two-year drought.
According to data from Dealogic, investment banking revenues in 2024 are on track to be the third highest in the past decade as of December 17.
Activity levels remain slightly below the 10-year historical average, which includes a breakout year in 2021, but Solomon predicts this will change next year with more deals in the pipeline and a simpler merger and acquisition approval process in Washington.
“By 2025 we will certainly be at the ten-year average. We could be above the 10-year average,” Solomon said at a Reuters conference this month.
The big prize for the banks would be if the incoming Republican administration took an ax to the big bank regulators and their rules and regulations.
What banks are mainly hoping for is that a new government will relax a new set of controversial capital rules proposed by top bank regulators that would require lenders to set aside larger buffers for future losses.
The requirements are based on an international set of capital requirements known as Basel III, imposed in the decade after the 2008 financial crisis.
Banks have fought this U.S. proposal in an aggressive public campaign over the past year, even dropping hints about suing regulators if they don’t get their way.
They scored a big victory in September when some regulators said they would weaken those requirements.
Bankers expect the new government to revise the rules again. If the previous Trump administration’s position is any guide, the new round of capital increases could range from the current 9% to “no increases,” Barclays’ Goldberg added.
There are still many uncertainties that could tip bank stocks. Some economists worry that Trump’s broader economic agenda of raising tariffs, cutting taxes and deporting undocumented immigrants could increase inflationary pressures and keep interest rates higher.
That, in turn, could make life more difficult for bank borrowers and increase borrowing costs for lenders.
But bank investors are happy with their chances. Just like the bankers.
Bank of America CEO Brian Moynihan told Yahoo Finance at the Invest conference last month that he has confidence in the US economy under Trump’s leadership and expects the administration to “get off to a good start.”
David Hollerith is a senior reporter for Yahoo Finance, covering banking, cryptocurrency and other areas of finance.
Click here for an in-depth analysis of the latest stock market news and events affecting stock prices
Read the latest financial and business news from Yahoo Finance
