This article, originally published at 4:22 p.m. on Friday, Jan. 6, 2017, has been updated with market data and corrected to show KBW has an underperform rating on STC.
Financial stocks ended 2016 on a high, and they're poised to gain even more ground in the New Year.
Already, the financial sector has rallied more than 23% since Donald Trump captured the presidency on Nov. 8 and Republicans kept their grip on both houses of Congress. Analysts, investors and traders are showing fresh optimism about Wall Street's prospects as the president-elect promises lower corporate taxes, looser regulation and increased government spending.
The question facing investors now is which stocks are best positioned to build on those gains.
Analysts at Keefe, Bruyette & Woods, a New York-based brokerage that specializes in the finance industry, have chosen 9 they expect to lead the pack: Credit card-processor Visa (V) , wealth management company Charles Schwab (SCHW) , insurance provider AON (AON) , global investment firm KKR (KKR) , bank holding company SVB Financial Group (SIVB) , retirement firm Voya Financial (VOYA) , real estate investment trust Colony Starwood Homes (SFR) , personal insurance company National General Holdings (NGHC) , savings and loan company Meta Financial Group (CASH) . KBW analysts expect global real estate service firm Stewart Information Service (STC) to underperform, but still consider it a best idea for 2017.
"The key themes that will drive financial stock performance in 2017 are both global and also national," said Fred Cannon, the Keefe Bruyette research director who led a briefing with reporters last week. Moderate economic growth, higher interest rates, increased trade friction, and currency clashes are a few of the trends that stockholders should monitor, the firm's analysts said.
"Since the U.S. elections last year, we have seen a global reflation trade with a view that the worst of deflation may be behind the developed economies as populist governments in the U.S. and elsewhere move to expand fiscal policy and restrict trade, both of which can drive higher inflation," Cannon said.
The KBW Bank Index, which tracks the performance of leading banks, climbed almost 26% in 2016 and has gained an additional 1.1% so far this year. Investors may benefit from looser regulation of smaller banks, industry analysts say, even if Congress proves less willing to ease restrictions on the biggest U.S. financial institutions.
On Friday, the Dow Jones Industrial Average climbed 0.33% to close at 19,963.80 after setting an intraday record of 19,999, reflecting a post-election rally driven by JPMorgan Chase (JPM) and Goldman Sachs (GS) . The blue-chip index dropped 0.3% to 19,912.75 on Monday, retreating from its 20,000 milestone.