The lead-up to the U.S. Tax Cuts and Jobs Act saw universal support among America’s financial elite. Although major financial institutions had been critical of Donald Trump the candidate, there was enthusiasm for the prospect of a massive tax cut for U.S. corporations. In December 2017 these hopes were realized and corporate taxes were slashed from 35% to 21%.
The first half of 2018 has seen U.S. banks rake in profits on the back of tax reform. On August 23 the Federal Deposit Insurance Corporation (FDIC) reported that commercial banks and savings institutions achieved a record $60.1 billion in profits in the second quarter.
This represented an increase from the $56.1 billion posted in the first quarter.
The stock performance of U.S. banks was fairly muted in the first half of 2018. This was primarily because most gains were priced in over the course of 2017 as the Republicans made tax reform their primary legislative goal.
JPMorgan Chase (NYSE:JPM) stock has climbed 6.3% over the past three months as of close on August 30. Goldman Sachs (NYSE:GS) stock has increased 4.4% over the same period.
The U.S. economy has been equally impressive, posting 4.2% growth in the second quarter which beat expectations. Investors should expect banks to continue to rake in profits as we approach the final months of 2018. The tepid performance of U.S. bank stocks gives investors looking long an opportunity to seek out entry points before the New Year.
