Zions Bancorp (NASDAQ:ZION) — our pick for one of the top-performing stocks of 2017 — has been on a roller-coaster ride this year. The enthusiasm that lifted the stock earlier this year dissipated as traders began to lose confidence in Congressional Republicans’ ability to deliver on any of the campaign promises they had made.
However, now that Congress has “kicked the can down the road” on the debt ceiling and is once again talking about tackling tax reform, ZION is starting to bounce.
Another Sector Rotation
We saw this happen earlier in the summer, only to reverse course in August, but traders appear once again to be rotating funds into the financial sector and out of the mega-cap tech stocks — like Amazon.com, Inc. (NASDAQ:AMZN), Facebook Inc (NASDAQ:FB) and Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL).
Traders seem to be taking profits on their high-flying tech trades and moving those funds into the Financial sector, which had been underperforming at the end of the summer.
Revisiting Our Initial Analysis on Zions
At the beginning of the year, we believed the Trump administration could bolster ZION by:
- Scaling back, or fully repealing, the Dodd-Frank Wall Street Reform and Consumer Protection Act
- Boosting inflation expectations
- Relaxing environmental regulations for drilling while OPEC caps oil production
- Lowering corporate tax rates
At this point, the Donald Trump administration has made good on two-and-a-half of its promises and is working on making good on a the remaining one-and-a-half.
First, the Trump administration backed the Republicans in the House as they started the process of scaling back the restrictions that were put in place by the Dodd-Frank Act. Republicans passed H.R. 10: Financial CHOICE Act of 2017 with a vote on June 8.
Unfortunately for ZION, which would benefit from the implementation of these changes, the Senate has yet to bring the bill up for a vote. This warrants half a victory for the administration. They still need to push the change over the finish line.
Second, whether the increase is directly attributable to any action taken by the Trump administration or not, the United States has seen strong gross domestic product (GDP) growth this year — with Q2 growth climbing to 3%, according to the Bureau of Economic Analysis (BEA).
This trend has given the Federal Open Market Committee (FOMC) the confidence to announce not only that it will begin winding down its balance sheet in October but also that it may raise the Federal Funds rate one more time during 2017 to stay one step ahead of potentially rising inflation.
This announcement sent Treasury yields, which had been in a slow tailspin, back up to higher highs and caused the Treasury yield curve to steepen more than it has in months. This steepening should be good news for ZION’s net interest margin revenue.
Third, President Trump signed an executive order, known as the America First Offshore Energy Strategy, on April 28 that could open Arctic waters and other currently off-limits areas to oil exploration and drilling. While these areas haven’t been opened for drilling just yet, the industry is excited about its prospects. Plus, oil prices have rebounded in the aftermath of hurricane Harvey, which is good for ZION’s energy-based loan portfolio.
Lastly, Congress — in conjunction with the Treasury Secretary and President Trump’s economic team — finally seems ready to tackle tax reform. The information swirling around Washington is still light on detail, but Wall Street is keeping stock prices elevated in anticipation of seeing something that could spark a continuation of the bullish run we’ve been enjoying since November 2016.
Conclusion on ZION Stock
ZION has climbed back up to resistance at $46 after having completed a bearish head-and-shoulders reversal pattern in early September (see Figure 1).
This tells us traders aren’t ready to throw in the towel on this regional bank just yet, especially with the prospect of tax reform and the Senate’s passage of the Financial CHOICE Act on the horizon.
Figure 1 – Daily Chart of Zions Bancorp (ZION)
We still expect ZION to revisit its March high of $48.33 and potentially move even higher.
InvestorPlace advisers John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of LearningMarkets.com, as well as the co-editors of SlingShot Trader, a trading service designed to help you make options profits by trading the news. Get in on the next SlingShot Trader trade and get 1 free month today by clicking here.
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