Financial stocks have surged ahead of tech in year-to-date performance, fueled by a Trump-led rally on Wednesday that lifted banks and brokers amid investor expectations of a deregulation-friendly political landscape ahead.

The Financial Select Sector SPDR Fund XLF has risen by 30% in 2024, outpacing the Technology Select Sector SPDR Fund XLK, which is up 26% this year.

Small and mid-sized banks, tracked by the SPDR S&P Regional Banking ETF KRE, have also seen strong performance, with a 13% jump following election results, bringing them in line with tech sector gains.

Financial stocks, which have lagged behind technology for six of the past seven years, are now catching up, propelled by renewed optimism for deregulation and M&A activities.

Analysts Expect M&A Activity to Heat Up

With the Trump administration’s return to the White House, analysts are projecting a significant uptick in mergers and acquisitions (M&A) in the financial sector.

“Under the upcoming Trump II administration, we expect a more favorable backdrop for M&A which could lead to additional activity in the space after having been quiet for the past few years,” said Anthony Elian, CFA, analyst at JPMorgan.

Lower regulatory barriers could pave the way for consolidation among smaller banks, while larger financial institutions are expected to benefit from a more active capital markets environment.

Read also: Regional Bank Stocks Notch Strongest Day In 4 Years: Why Analysts Expect ‘Several Tailwinds’ From Trump Policies

A Lighter Regulatory Touch Boosts FinTech and Digital Assets

Devin Ryan, analyst at Citizens JMP Securities, highlighted that a Trump-led "sweep of Congress" could significantly ease regulatory pressures for the broader financial and fintech sectors.

“The ‘Trump Trade’ had already been underway in the market in recent weeks, but the resounding presidential win, and perhaps more importantly, likely sweep of Congress, is adding fuel to the fire in stock moves,” Ryan explained.

For fintech firms, this shift could relieve recent regulatory scrutiny, particularly in areas such as connectivity with traditional banks and practices overseen by the Consumer Financial Protection Bureau (CFPB). Companies involved in digital assets stand to benefit even more, as regulatory clarity would open the door for new market entrants and increase industry participation.

"Digital assets could arguably be the biggest winner of them all," said Ryan, who sees sentiment in the space "improving materially from here."

Ryan indicates the political climate has shifted to one more favorable for cryptocurrencies, as policymakers begin to recognize the economic and electoral weight of pro-crypto sentiment.

The expert is particularly bullish on several key players in the financial sector.

Among asset managers and retail brokers poised to capitalize on the deregulation wave, Citizens JMP Securities’ top picks are:

Company	Price Target	Sector
Perella Weinberg Partners PWP	$26	Investment Banking
Blue Owl Capital Inc. OWL	$25	Alternative Asset Mgmt
Carlyle Group Inc. CG	$60	Private Equity
LPL Financial LPLA	$310	Wealth Management
Charles Schwab Corp. SCHW	$84	Retail Brokerage

In fintech, Ryan sees considerable upside for digital asset players and platforms with a strong foothold in crypto and private markets. His top picks include:

Company	Price Target	Key Segment
Robinhood Markets Inc. HOOD	$33	Retail Brokerage, Crypto
Forge Global Holdings Inc. FRGE	$7	Private Markets
Dave Inc. DAVE	$75	FinTech, Consumer Finance
Coinbase Global Inc. COIN	$320	Crypto Exchange

According to Ryan, Robinhood is expected to expand its crypto offerings, potentially enhancing customer engagement, while Forge Global is poised to gain from rising sentiment in private markets.

Coinbase, the largest U.S. cryptocurrency exchange, stands to benefit from clearer regulatory guidelines and the growing acceptance of crypto assets.

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