Should You Buy Bank Stocks After The Election?
Start here: will the midterms move your stocks?
Every bank investor remembers November 2016 and November 2024: the election result lands, and bank stocks take off like they’ve been told a secret. So it’s fair to ask whether that pop meant anything. We checked every election since 2006, and we’ll give you a straight answer. The part that matters more for your money, though, is simpler: do you know why you own your banks, and does your plan say what you’d do if that reason changed? We’ll come back to that at the end.
“The question in front of you is rarely the one that will matter in five years.” – Anonymous
What Does Everyone Already Know?
That banks are an election trade. The story goes like this: a result that promises lighter regulation, or higher interest rates, is good for lenders, so their stocks jump. And they did jump. After the 2010 midterms the bank fund KBE rose about 8% in three days, after 2016 about 11%, and after 2024 about 9%. Those were the bank fund’s three biggest election weeks in our 20-year record.
What fewer people remember is the next twelve months. Here’s every election, in one table, measured from the third day’s close so that nobody gets credit for the jump itself (bank figures include dividends; the S&P 500 is the index price):
| Election | Banks (KBE), election week | Banks, next 12 months | S&P 500, next 12 months |
|---|---|---|---|
| 2006 | +0.1% | −10.0% | +7.3% |
| 2008 | −13.2% | −15.1% | +17.4% |
| 2010 | +7.8% | −18.2% | +2.2% |
| 2012 | −4.3% | +41.6% | +28.4% |
| 2014 | +1.6% | +10.9% | +2.3% |
| 2016 | +11.4% | +15.2% | +19.4% |
| 2018 | +0.2% | +8.0% | +11.2% |
| 2020 | −3.7% | +75.1% | +34.0% |
| 2022 | +2.9% | −18.3% | +12.6% |
| 2024 | +8.9% | 0.0% | +14.3% |
| 2026 | −1.0% | ? | ? |
Banks beat the S&P 500 over the next year only 3 times in 10, and two of those three came after weeks when banks fell.
So, Did The Jump Mean Anything?
Not much, honestly. In the five elections when banks beat the S&P 500 during election week, they went on to beat it over the next year once. In the five when they lagged, they beat it twice. That’s no better than the rest of the market: across the sector and theme funds we checked, a fund’s election week against the S&P 500 pointed the same way as its next year less than half the time. A coin flip.
Look at how the three big jumps played out and you see the same shape each time. In 2010 the bank fund was up another 13% three months later, then finished the year down 18%. In 2016 it was up 17% at three months and ended up 15%, giving back a little while the S&P kept climbing. In 2024 it was flat after a month, slightly down at three months, and flat after twelve. The excitement got priced in fast. After that, the year was decided by the things that always decide bank stocks: interest rates, loan losses and regulation.
And the honest worst case is worth having in your head. After the 2008 election, when banks had already fallen 13% in three days, the fund fell roughly another half over the next three months. Citigroup was down about 65% a year later. A bad week can be followed by a much worse quarter. It just wasn’t, most of the time.
Wait, Didn’t The Big Banks Do Fine?
They did, and this is the surprise in the data. KBE tracks a modified equal-weighted index of large, mid-size and small banks, so it behaves a lot like a regional bank fund. The giants told a different story after the same three elections:
| Next 12 months after | 2010 | 2016 | 2024 |
|---|---|---|---|
| JPMorgan | −15% | +31% | +38% |
| Bank of America | −47% | +41% | +23% |
| Wells Fargo | −12% | +7% | +26% |
| Goldman Sachs | −38% | +19% | +45% |
| Morgan Stanley | −38% | +29% | +35% |
| Citigroup | −32% | +38% | +54% |
| Bank fund (KBE) | −18% | +15% | 0% |
| S&P 500 | +2% | +19% | +14% |
After 2010 every giant lagged. After 2016 four of six beat the S&P 500. After 2024 all six did, while the bank fund went nowhere.
So in two of the three “banks lagged” years, the real gap was big banks against smaller ones. One caution: these six are among today’s largest companies, which is partly why they’re in our list. Survivors look better in hindsight. Citigroup almost didn’t make it through 2008.
Why Did Banks Barely Move This Time?
This year the bank fund rose about 2% on the day after the election, then ended the week down 1%. The big banks did the same thing in a sharper way: up about 2% to 4% on Wednesday, then down by Friday. What changed in between wasn’t politics. On Thursday the S&P 500 fell 4.4% as the AI trade unwound. The why: a backlash against data centers, and open talk of bans and moratoriums, including a pledge from Texas’s governor-elect. Chip makers and the power and data-center builders fell hardest, and banks went down with everything else.
What would bring buyers back to AI stocks is a clear reason, and the clearest one is that an outright stop on data centers would hand the AI lead to China. That isn’t happening. Big Tech’s capital spending last quarter was more than its businesses brought in as cash, and companies as far from tech as Nike have cut jobs while they keep paying for AI. That spending is part of the bank story too: it is one more fuel for inflation, and inflation is what sets the interest rates banks live on.
There’s a rates clue here too. Banks earn more when long-term interest rates rise, and in each of the three jump years, long Treasury bonds fell on the day after the election, which means long rates rose:
| Day after election | Long Treasuries (TLT) | Banks (KBE) |
|---|---|---|
| 2010 | −2.0% | +1.9% |
| 2016 | −4.2% | +5.2% |
| 2024 | −2.7% | +11.9% |
| 2026 | +0.8% | +1.9% |
The bank jumps came with a rates jump. This year long rates went the other way, and there was no jump.
So the why behind every bank jump was simple: the market bet the election meant higher rates. And what made two of those three jumps fade was rates and credit, not politics. Which brings us to the big story for rates today. We argued in October that inflation is back, driven by three words, war, immigration and taxes, with AI spending as a fourth fuel on the fire: Inflation Is Back. Is A Stock Market Crash Next? If that’s right, long rates stay high, and that has historically been the friendlier setting for bank earnings. If inflation cools and long rates fall, that’s what would take the shine off banks, and last week long rates eased a little.
That’s the useful lesson, and it’s why this year may be the easier setup to understand. In 2016 and 2024 bank owners had to ask how much of the jump was real. This year there’s no jump to give back. Whatever banks do from here will come from the same few things that decided the last ten years: where rates go, how many loans go bad, and what Washington does. On that last one, we wrote on Nov 3 that the bigger risk for card-heavy lenders is a cap on credit-card interest rates, not the party in charge: Bank Stocks’ Real Risk Is A Credit-Card Rate Cap.
What Do Bank Stocks Look Like Today?
Here’s the classic Trefis snapshot of the six biggest banks at Monday’s close:
| Bank | Election week | P/E | Below 52-wk high |
|---|---|---|---|
| JPMorgan $342 | −1.0% | 13.9 | −6% |
| Bank of America $51 | −0.5% | 11.1 | −22% |
| Wells Fargo $85 | −1.3% | 11.2 | −11% |
| Goldman Sachs $906 | −3.4% | 12.1 | −21% |
| Morgan Stanley $187 | −2.5% | 14.2 | −18% |
| Citigroup $122 | −3.0% | 10.6 | −16% |
Cheap on earnings, and most of them well off their highs before the election even started.
And here’s how they got here:
| Bank | Past 3 years | Revenue growth (LTM) | Dividend yield |
|---|---|---|---|
| JPMorgan | +153% | +10.7% | 1.9% |
| Bank of America | +97% | +5.4% | 2.5% |
| Wells Fargo | +127% | +5.7% | 2.3% |
| Goldman Sachs | +202% | +18.7% | 2.2% |
| Morgan Stanley | +175% | +16.5% | 2.5% |
| Citigroup | +220% | +9.8% | 2.2% |
Over the same three years the S&P 500 fund rose about 80%. Every big bank beat it, most by a wide margin.
Put the two tables together and you get a fair picture. These businesses grew, the stocks roughly doubled or better, and the market has spent the past few months taking some of that back. Goldman and Morgan Stanley, the two most tied to deal-making and trading, are growing fastest, yet sit about a fifth below their highs. None of that was decided on election night.
What’s The Bigger Number?
Step back from the week and the long record is plain. Over the 10 elections, the bank fund’s 12-month results ran from a loss of 18% to a gain of 75%, and the biggest gains came after weeks when banks fell, 2012 and 2020, when nobody wanted banks. That spread, not the election-week move, is what a bank owner signs up for. The part that will still matter in 2027 is whether your banks keep earning more than they lose on loans, through whatever rates do.
What Goes On Your Plan For Bank Stocks?
1. Count what you own. Your S&P 500 fund already holds every bank in our tables. Add your direct shares and your bank or financials fund, and write down the total as a share of your portfolio. If it’s far above what you meant, that’s the first fix.
2. Write the reason. One line per bank: “steady dividend and buybacks,” “a bet on higher rates,” “deal-making recovery.” That line is your sell rule. Sell when the reason breaks, not when the price wiggles.
3. Name what would change your mind. A credit-card rate cap that becomes law, a sharp rise in bad loans, or long rates falling hard. Check those, not election-week charts.
4. Size for the bad case. After 2008 the bank fund fell roughly another half in three months. Hold no more than you could watch do that without selling.
What this replaces: buying banks because they jumped on election night, or dumping them because they didn’t. The risk: if rates fall fast or loan losses climb, cheap bank stocks can get cheaper, and a plan won’t stop that. It just keeps you from deciding at the worst moment. Our one-page version for your whole portfolio is in Will Stocks Rebound Today, Or Do You Have A Plan?
What Are The Pros Watching?
Three things. Long-term rates, since the bank jumps of 2010, 2016 and 2024 all came with rising ones. The banks’ fourth-quarter reports in mid-January, where loan losses show up first. And any move in Congress on credit-card rates. Each is a reason to check your plan. None of them showed up in last week’s chart.
The jump wasn’t the signal. Banks jumped 8% to 11% after 2010, 2016 and 2024, and the bank fund trailed the S&P 500 over the next year all three times. Over 10 elections it trailed 7 times, whatever its election week did. The big banks were a different story: after 2024 all six beat the market. This year banks barely moved, so there’s nothing to give back. What decides the next year is rates, loan losses and regulation. Know your total bank exposure and the reason you own each one.
What Should You Ask Next?
- The election’s biggest losers beat the S&P 500 six times in ten. What about this year’s energy stocks? Buy Or Sell Energy Stocks After Their Worst Election Week?
- Would a credit-card rate cap hurt your bank, or only the card lenders? Bank Stocks’ Real Risk Is A Credit-Card Rate Cap
- Does your whole portfolio have a plan for a bad week? Will Stocks Rebound Today, Or Do You Have A Plan?
Follow this story with us: we’ll come back in three months and a year and score this year’s banks against the record.
Do You Know Why You Own Your Banks?
One week rarely decides a year. If you have $1 million or more invested, see whether your plan fits what comes next in a free 15-minute call with a Trefis partner firm.
For questions about this article or underlying research, email help@trefis.com.