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Revisiting the Trump Trade


The 16-company strong Major Regional Bank industry stands out in Zacks Industry Ranks -- these late spring days. The niche ranked #47 out of 265 Zacks industries this week. That rank was #35 last week. For the final spring week of April, I count 6 upside analyst earnings revisions and just 2 downside revisions.

What have Regional Bank share prices done -- recently? To answer succinctly, study the group’s top Exchange Traded Fund (ETF) trading performance.

The iShares U.S. Regional Bank ETF (IAT) shot up from $36 a share --at the time of the U.S. Presidential Election-- to $46 by the end of 2016. The ETF then hit a spiky high of $49 a share on March 1st. Now, shares trade at $45.

That’s a ‘Tell’ -- Regional Banks are an outstanding example of a ‘Trump Trade.’

What does that mean? It meant that last November, covering analysts thought the new business-friendly President would provide broad tangible earnings upside across this group of companies. Given the spurt-up in share prices, traders drank that policy-driven Koolaid too.

For this banking niche, Trump Trade tangible benefits took two forms. One was a lower corporate tax rate, enhancing profit margins. The second was less Dodd-Frank regulation, cutting costs.

In late April, after a March Fed rate hike enhanced bank interest margins, Zacks still ranks this top Regional Bank ETF a #1 Rank (STRONG BUY). The ETF dividend yield rests at 1.46%. With respect to specific ETF share holdings we care about for this piece, PNC is a high 11.2% ETF weight. Comerica is 2.35% weight. Northern Trust is not included.

Finally, realize this -- covering analyst’s annual forward earnings estimate revisions drive our Zacks Rank system. In light of that reality, let’s take a very close look into what one leading analyst covering this banking niche had to say.

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