Election rally: What’s priced in?
Since the election, our coverage is up 23% vs. the S&P 500 +6%. We believe that the rally reflects higher interest rates, a steeper yield curve and some probability of changes to regulatory and tax policies. Overall, we believe about 42% of a “blue sky” scenario is currently priced in. Our top picks remain Buy-rated BAC (on CL) and WFC.
Earnings: Building an upside case
The most important drivers to our upside earnings scenario are changes in rate expectations (~17% vs cons.), potential for corporate tax reform (14%) and increased probability of greater capital returns (13%). Normalization of credit costs could reduce earnings estimates by 9%.