Stocks

Why JPMorgan Chase, Bank of America, and Wells Fargo Saw Stock Rallies in November

Published December 7, 2024

In November, shares of the major banks known as "too big to fail"—JPMorgan Chase, Bank of America, and Wells Fargo—experienced notable price increases. Specifically, their stocks rose by 12.5%, 13.6%, and 17.3%, respectively, as reported by S&P Global Market Intelligence.

These banks had previously reported their earnings in October. However, significant political developments emerged after the election results on November 5, where Donald Trump was elected and Republican majorities were established in both the House and Senate. This news generated excitement among investors, particularly in the financial sector, leading to substantial gains for these large banks.

Expectations of Regulatory Easing

Following the financial crisis of 2008, regulators in the U.S. and Europe enforced numerous regulations impacting banks, especially those deemed "too big to fail." These regulations required banks to maintain higher levels of equity capital to protect against economic downturns.

However, these regulations also restricted the banks' ability to lend, with estimates suggesting that they could only lend about 65% of their deposits instead of a more favorable 100%. JPMorgan's CEO, Jamie Dimon, has expressed concerns that the regulations enacted after 2008 have overly constrained the lending capabilities of large banks.

Moreover, there is the possibility that the current Federal Trade Commission (FTC) chair, Lina Kahn, may be replaced, which could reduce the barriers to mergers and acquisitions in the financial sector. The gains expected from a new, more lenient FTC director could benefit banks like JPMorgan, Bank of America, and Wells Fargo, which all have significant investment banking operations.

Additionally, a Trump administration along with a Republican-controlled Congress may aim to preserve the lower corporate tax rates established under the 2017 Tax Cuts and Jobs Act. Since many U.S. banks are substantial corporate taxpayers, the idea of maintaining these lower tax levels offers investors a clearer picture of potential profit growth in the coming years.

Financial Sector Performance

This year, the financial sector has emerged as the top performer among various segments in global markets, even outperforming technology stocks during a time of heightened interest in artificial intelligence. The financial sector's attractiveness can be attributed to its comparatively low starting valuations, anticipated relief from regulatory burdens, and the outlook for lower interest rates as inflation concerns begin to ease.

Despite the significant rise in their stock prices thus far, JPMorgan, Bank of America, and Wells Fargo continue to trade at relatively low multiples, with trailing P/E ratios in the mid-teens. While these valuations have improved, they remain reasonable in comparison to their historical levels.

For current shareholders, these stocks appear to be a solid investment. Furthermore, for those not yet invested in the banking sector, now may be an opportune time to consider including these major banks in their portfolios for diversification.

Stocks, Banks, Investing