Bank Stocks Poised to Outpace S&P 500 as Tariff Chaos Peaks

Bank of America Securities believes the worst of the tariff-induced market volatility is over, and bank stocks are poised to outperform the S&P 500. Analyst Ebrahim Poonawala notes that "peak chaos" has likely been reached.

Following a period of market volatility driven by tariffs, Bank of America Securities has expressed optimism that the worst is over, positioning bank stocks to outperform the broader S&P 500. In a note to clients, analyst Ebrahim Poonawala stated, "Tariffs have thrown a curveball, but 'peak chaos' is likely behind us" [1].

Poonawala highlighted several megabank stocks as top picks, including JPMorgan Chase (NYSE:JPM), Wells Fargo (NYSE:WFC), Goldman Sachs (NYSE:GS), BNY Mellon (NYSE:BK), and Morgan Stanley (NYSE:MS). These banks have shown strong performance this year, with earnings per share (EPS) revisions outpacing the S&P 500. Poonawala's bullish call is based on his 3Rs thesis—Rates, Regulations, and Rebounding Activity—being "on firmer footing" [1].

While regional banking stocks have lagged behind the overall equities market, Poonawala sees potential for upside, particularly with a catalyst such as well-received mergers and acquisitions (M&A) activity or an increase in lending. Huntington Bancshares (HBAN), Fifth Third Bancorp (FITB), and KeyCorp (KEY) are among the attractive regional banks, according to the analyst [1].

The regional banking sector, represented by the SPDR S&P Regional Banking ETF (KRE), has underperformed the S&P 500, falling 4.6% year-to-date compared to the S&P 500's 1.5% gain [1].

In contrast, the broader US stock market has shown mixed signals, with the S&P 500 and Nasdaq slipping while the Dow edged slightly higher. This volatility is attributed to rising US-China tensions and cooling inflation pressures. Despite these challenges, stocks are expected to close May with strong gains [2].

The S&P 500 and Nasdaq Composite slipped by 0.1% and 0.3%, respectively, while the Dow Jones Industrial Average inched up by 0.1%. The cooling inflation data, as indicated by the core PCE index, has provided some relief, suggesting that price pressures are easing. However, the uncertainty surrounding US-China trade tensions remains a significant concern [2].

Investors are closely watching the developments between the US and China, as President Trump's latest comments on China have reignited trade war fears. The cooling PCE inflation data has also moved markets, reducing pressure on the Federal Reserve to raise interest rates further [2].

In conclusion, while the market faces ongoing geopolitical uncertainties, Bank of America Securities' optimism about bank stocks is based on a firming rate and regulatory environment. Investors should closely monitor these developments and consider the potential for bank stocks to outperform the broader market [1].

References:
[1] https://seekingalpha.com/news/4455510-big-bank-stocks-poised-to-outpace-sp-500-as-peak-tariff-chaos-passes---bofa
[2] https://economictimes.indiatimes.com/news/international/us/us-stock-market-today-dow-edges-up-but-sp-500-and-nasdaq-fall-as-trumps-china-tariff-threat-hits-apple-nvidia-regeneron-and-gapeven-as-inflation-cools/articleshow/121520415.cms?from=mdr