This Trump Trade Boomed After Election—Now It May Be Making A Comeback

Once seen as one of Wall Street's favorite bets on a Trump presidency, regional bank stocks have lagged in 2025—but renewed optimism around deregulation and cheap valuations could soon turn the tide.

When Donald Trump won the presidential election for a second time in November 2024, regional bank stocks skyrocketed.

The SPDR Regional Banking ETF KRE, which tracks 147 small- and mid-sized U.S. lenders, surged 13% on Nov. 6, 2024. That was its biggest one-day rally since the vaccine frenzy of November 2020, and excluding that anomaly, the strongest since October 2008.

The Russell 2000 index, which heavily weights regional banks, popped 6% that same day, outshining the S&P 500's 2.5% and the Nasdaq 100's 2.7% moves.

No other sector on Wall Street rallied as sharply as regional banks did following the 2024 election.

Investors were betting hard that a deregulatory Trump agenda would fuel profits, spark mergers and acquisitions and slash compliance costs for smaller banks.

After Trump was sworn in January, many expected a continuation of the rally, but that never came.

Six Months In, This Trade Has Gone Nowhere—Yet

Six months into the new administration, the KRE ETF is barely unchanged for the year, while tech-heavy benchmarks continue to rise.

Some of the shine faded as investors realized that regulatory rollbacks would take time, and Federal Reserve rate cuts—key to boosting lending—never materialized.

While Wall Street has already rewarded large-cap financials—Investment Banking and Diversified Bank stocks have outperformed in 2025—regional banks have been left behind.

The iShares U.S. Broker-Dealers & Securities Exchange ETF IAI is up 18% year-to-date, nearly three times the gain of regional banks.

This Forgotten Trump Trade May Be Ready To Reignite, Says Wall Street Veteran

Ed Yardeni believes that's exactly why now might be the moment to look at regional banks again.

"The Regional Banks index can't boast that. But trading at a much lower P/E and with rosy earnings rebound prospects, Regional Banks may be the more interesting play," said the Wall Street veteran in a Thursday note.

Valuation is a big part of the bull case.

Regional banks trade at a significant discount to large-cap banks, with a forward price-to-earnings ratio in the single digits.

The Diversified Banks and Investment Banking & Brokerage industries trade at the highest forward P/Es—13.3 and 15.9—while Regional Banks lag behind with the lowest at 11.1.

That's historically low, suggesting investors aren't yet pricing in a regulatory tailwind.

“The Regional Banks industry's forward revenues and operating earnings remain well off their 2023 highs, but earnings growth is expected to improve sharply from a 7.6% decline in 2024 to increases of 11.3% and 15.5% this year and
next,” Yardeni said.

Mergers and acquisitions could also come back in vogue if Trump delivers on regulatory relief. During his first term, regional banks were among the most active dealmakers.

A repeat could help mid-sized lenders scale up in a competitive landscape dominated by giants like JPMorgan Chase & Co. JPM and Bank of America Corp. BAC

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