Despite the recent volatility swings, regional banking is still drawing some interest. Market expert Michael Bapis, a director of the Bapis group at HighTower Advisors, is recommending investors keep their eye on the regional banking sector.
Bapis cited rising interest rates, a strong U.S economy, and less financial regulation as a few of the reasons he is bullish on small banks. “We would continue to own the space” he said.
Additionally, he believes the corporate tax reform will directly benefit smaller banks. On CNBC’s “Trading Nation” he said the advantages of last year’s tax cut will go “right to their bottom line.”
On top of tax cuts for the banks themselves, other companies are experiencing more growth. The increased success of U.S companies could mean more lending activity. If the rate of U.S economic growth continues to accelerate, the Federal Reserve may raise interest rates even further, creating the perfect storm for regional banks to prosper.
“As long as the economy stays strong, rates continue to rise, the spreads rise and the tailwind is still there with tax reform you’re going to see this whole sector rise,” Bapis said.
So far, 2018 has been a good year for small bank stocks already. Last week, the SPDR KBW Regional Banking ETF (NYSEARCA: KRE) reached an all-time high on Wednesday, and continued to rise momentarily on Thursday before dipping shortly after market open. The ETF has risen approximately 9% YTD, an increase almost 5 times that of the S&P 500.
Investment bank Piper Jaffray is recommending Banco Popular (OTC Pink: BPESY) in particular. The Chief Market Technician, Craig Johnson, pointed out the stock looks strong on the technical level. Fellow analyst Brett Rabatin rates Banco Popular at “Overweight”, with a price target of $51.50.
Overall, the current market climate continues to be very supportive of the regional banking industry. Rising rates, growing economic strength, and tax cuts are some of the biggest advantages facing the industry this year. Wall Street veterans are increasingly seeing opportunity in across the small banking sector.