Perhaps if the White House and Congress pressure the banks to lend to less qualified applicants, bank profits will grow and consumers will be giddy with the extra dough. Of course, these are the same types of “community reinvestment” issues that occurred leading up to the financial collapse circa 2007-2009.
As I wrote in a a previous column, I would be more comfortable with regional banks than the big boys. Primarily, they understand that they are not too big too fail, so they tend to be smarter about the quality of the loans that they add to their books. Investors might be wiser to pursue SPDR S&P Regional Banking (KRE) over SPDR S&P Bank (KBE) or SPDR Sector Financials (XLF).
Moreover, with or without a 2014 correction, I expect brokerages to reap the rewards of stock and stock ETF inflows. iShares U.S. Broker-Dealers (IAI) could be a venerable pick-up on a pull-back to its 50-day trendline.
The Fed’s determination to keep rates relatively subdued, even as it is curbing dollar creation, may be more beneficial to dollar-hedged foreign equity funds. In particular, funds like WisdomTree Hedged Japan Equity (DXJ) and WisdomTree Hedged Germany Equity (DXGE) are attractive from a valuation basis as well as a currency basis; expect the yen and the euro to depreciate against the dollar.