Deregulation to Fuel Stock Market Growth
Bank of America predicts that deregulation will drive a significant boost to the stock market, presenting an undervalued investment opportunity.
Key Beneficiary Sectors
Savita Subramanian, Bank of America's top stock strategist, identifies consumer discretionary and financials sectors as prime beneficiaries of deregulation. These sectors have faced significant regulatory burdens that deregulation will alleviate, leading to cost savings and efficiency gains.
Deregulation Agenda
President Trump's executive order mandates the elimination of 10 regulations for every new regulation issued. Additionally, the Consumer Financial Protection Bureau's regulatory scope has been curtailed, halting its oversight of banks and financial institutions.
Valuation Implications
Despite valuations appearing elevated, Subramanian argues that deregulation may reduce the perceived overvaluation. Sectors impacted by strict regulation, such as financials, consumer, and commodities, trade at discounts compared to lightly regulated sectors like technology and communication services.
Investment Recommendation
To capitalize on deregulation, investors should consider long positions in financial stocks, particularly large banks, while avoiding technology stocks. The deregulation trade involves a potential shift in valuations, with financials gaining and technology losing relative value.
Market Response
Subramanian's analysis aligns with market trends, with the financials sector outperforming the technology sector in year-to-date returns.