Shares of JPMorgan Chase (JPM -0.81%) were surging today in response to former President Trump's victory last night. Cyclical stocks like banks and energy broadly soared on the news, as the new Republican administration is expected to take a number of steps to stimulate the economy, including tax cuts and a friendlier regulatory framework to business, which tends to favor banks.
JPMorgan Chase shares also seemed to get a boost as Jamie Dimon will remain at the CEO position and not take a job with the Trump administration, as some had suspected.
Driven by those combined issues, the stock soared 10.3% as of 11:55 a.m. ET -- huge gains for the country's No. 1 bank by assets. The financials sector as measured by the Financial Select Sector SPDR Fund jumped 5.6%, showing roaring gains for bank stocks broadly.
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A new era for bank stocks?
Republicans tend to be perceived as friendlier to big businesses, and a looser regulatory climate could encourage more IPOs and mergers and acquisitions, which will help investment banks, including the one JPMorgan Chase operates.
Additionally, investors seem to think that Trump policies will encourage more business investment, which encourages borrowing from banks as well. Looser capital requirements could also free up banks to return more capital to shareholders through dividends and share buybacks, and allow them to take more risks, keeping less capital in reserve.
Investors were also pleased that Dimon will stay at JPMorgan, as he's one of the most respected leaders in banking.
Can JPMorgan Chase keep gaining?
A 10% gain for a stock like JPMorgan Chase is extraordinary, and investors shouldn't expect more days like this.
While the renewed bullishness for financial stocks is understandable, there are still a lot of unknowns about the next Trump administration, including whether Republicans will control the House, which will make it easier for them to pass legislation.
Additionally, the stock market is already expensive by historical measures, and Treasury yields soared today as well, which is generally a negative for stocks.
If the economy continues to expand, however, the next four years could be good for JPMorgan Chase and its peers.
