Now is a good time to make a bet on big banks, said Wall Street bull Tony Dwyer.
Investors are worried about their returns in the financial sector, Dwyer, chief market strategist at Canaccord Genuity, told, but “we found that now is the time you want to buy.”
Here are three reasons he gave:
1. Strong earnings growth
Dwyer pointed out that, in the first quarter, earnings were supposed to be up 24 percent.
He credited capital returns and bank buybacks for the strong earnings season.
2. Loosening of regulation
In May, President Donald Trump signed into law a rewrite of the so-called “Volcker Rule,” easing banking regulations. The Volcker Rule is part of the 2010 Dodd-Frank financial reform that prohibits banks from making market bets on their own accounts in order to profit off short-term price changes in the market.
With the revisions, the first major piece of deregulation since the 2008 financial crisis, banks now have more freedom to take short-term risks.
Loosening up the capital restrictions, Dwyer said, allows banks to give more money back to shareholders instead of holding it on reserve.
“Also, you’ve got a much lower regulatory burden and compliance burden on the smaller banks that are no longer considered too big to fail,” he said.
Banks have the opportunity to make more money with fewer regulations.
“The regulators took away [the banks’] ability to make money,” Dwyer said.
3. Yield curve flattening
A flat yield curve is one where there is little distinction between short-term and long-term bond rates.
“And that’s making everybody think, ‘Wow, this is a good time to get out of financials relative to the market,'” Dwyer said. “But that’s not true.”
Trader Georgi Bozhidarov