potential of higher interest rates, less regulation and stronger economic growth has landed financial stocks in a “sweet spot” right now, investment expert Anton Schutz told CNBC on Thursday.
The sector surged this week after Donald Trump was elected to the White House, with the Financial Select Sector SPDR Fund (XLF) up almost 9 percent in the last five days of trading.
“There’s a lot of trapped capital in the bigger banks because they’ve had to hoard it, they’ve had to be more liquid. Clearly they’ve been in a penalty box and it looks like they’re about to come out of the penalty box and have some fresh ice to skate on,” the president and chief investment officer of Mendon Capital said in an interview with “Power Lunch.”
That means there will be the opportunity for higher earnings, higher dividends, higher buybacks and more capital out there to stimulate the economy, Schutz noted.
While any reform or repeal of Dodd-Frank may be down the road, he believes near-term catalysts include rate hikes. Not only is there the anticipation of a December increase by the Federal Reserve, there is talk about more rises next year because fiscal stimulus is expected, he said.
Plus, trading activity has been “huge” and in a stronger market environment companies can raise capital and do more initial public offerings, said Schutz.
He also thinks there is now going to be more mergers and acquisitions.
“Some M&A has stalled because there’s a gap between the buyer and the seller. Well, guess what happens? I mean the buyer’s stock price is now up meaningfully so then can now meet the price of the seller.”
And a good environment for capital markets also means that estimates will be rising, Schutz said.
“You don’t snap your fingers and all of a sudden earnings get better but clearly there’s upside to everybody’s estimates for the next couple of years.”