The Trump rally in bank stocks is based on 'many potential positives that have not actually materialized' (ZION, WSBC, HBAN, WAL, EWBC)

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US banks may no longer be cheap, according to Macquarie Research, after the post-election rally in their share prices. While the S&P 500 is up 2.8% since the election, Super Regionals, or mid-sized banks active in multiple states, and the KBW Nasdaq Regional Banking Index are up 14.5% and 18.4% respectively.

"Banks have continued to lead the market in the wake of a surprise November Republican sweep," Macquarie Research's John Moran and his team observed in a note on Tuesday. Moran argued that both Super Regionals and Regionals, trading at 14 and 16.5 times Macquarie's 2017 earnings estimates respectively, are historically overvalued in both absolute and relative (to the broader S&P) terms.

Moran attributed the post-election rally to positive expectations surrounding greater fiscal spending, lower taxes, and lighter regulation under a Trump presidency. Greater confidence in a December Fed rate hike and expectation of a steeper yield curve also added to the rally.

The firm downgraded Zion Bancorp and WesBanco from Outperform to Neutral as their shares now appear to be fully valued after the rally. Huntington Bancshares, however, was upgraded to Outperform owing to the steepening of the yield curve and the stock trading at a 8% discount to peers.

Meanwhile, the firm maintained its bullish outlook on Western Alliance Bancorporation and East West Bancorp terming them to have "the most attractive valuations against return and growth profiles" among regional banks.

Macquarie also warned investors to "become more selective," when it comes to bank stocks, as the recent rally is based on "many potential positives that have not actually materialized."

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