Bank Stocks Revisit Pre-2016 Election Levels

Bank stocks have returned to the levels seen before the 2016 election, according to analysts from Bank of America (BofA).

Sector Performance

BofA notes that the banking sector has faced challenges, with the KBW Bank Index (BKX) down 10% from its peak in November 2025. In contrast, the S&P 500 has only dropped 1% over the same timeframe.

Despite this pullback, BofA views it as an opportunity for investors, citing improving regulatory conditions and expected growth in customer activities, including M&A, IPOs, and loan expansions.

Valuation Insights

According to BofA, bank stocks are currently trading at 11-12x 2025 P/E compared to 12-14x pre-pandemic levels. The sector represents one of the few within the S&P that is trading below its historical valuation but has stronger earnings growth prospects.

Yield Curve Impact

A wider yield curve has been favorable for banks, with the 2/10-year UST yield spread at its widest since 2022, which BofA links to improved net interest margins. The average yield on bond books for their coverage is 3.3% as of Q3 2024, contrasted with 4.5-5% reinvestment yields. However, high interest rates may restrain customer activity, particularly in loans and mortgages.

Future Outlook

BofA anticipates that loan growth recovery will likely be a 2025-2026 scenario, depending on stable macroeconomic policies and clear regulations. A stable Fed Funds rate would support bank stock performance, although renewed inflation may hinder recovery.

Top Picks

BofA's top pick is Wells Fargo (NYSE:WFC), credited for its strong position in M&A and IPO activities. Other notable mentions include Goldman Sachs, Morgan Stanley (NYSE:MS), and Citigroup (NYSE:C) for their potential in a market rebound, along with attractive regional banks like US Bancorp (NYSE:USB) and M&T Bank (NYSE:MTB).