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Are Financial Stocks Running Out Of Steam?

Are Financial Stocks Running Out Of Steam?

Eric Wasserstrom of Guggenheim Securities was a guest on CNBC's "Squawk Box" on Friday to offer his take on financial stocks.

The Trump Effect At Play?

Financial stocks have been a big winner throughout 2016, but Wasserstrom thinks the group is starting to run out of steam. Investors have been buying financial stocks, especially after President-elect Donald Trump won the election, under the belief that his presidency will usher in a new era of regulatory changes that will be supportive of financial stocks.

However, Wasserstrom believes any regulatory changes will take a lot of time to implement and much of the perceived change has already been factored into the strong gains in the financial sector.

He added that even though bank stocks are still cheap relative to their historical valuation this in itself isn't reason enough to be bullish.

"By historical standards they are still at the low end of their valuation range," he explained. "But also remember that the ROEs going forward are also going to look a lot different from their historical levels because the earnings power of these companies is different now and their equity is of course higher. Relative to that standard I think they are looking increasingly fair."

At last check, the Financial Select Sector SPDR Fund (NYSE: XLF) was down 0.25 percent on the day, trading at $23.64. Over the last month, the ETF is up over 13 percent; however, year-to-date, the ETF is down 0.8 percent.


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