The market isn’t yet pricing in one final bullish piece of Trump’s policy agenda.
Bank of America says deregulation is poised to provide a fresh boost to stocks.
Investors should eye stocks in consumer discretionary and financials sectors as key beneficiaries.
A cornerstone of President Donald Trump’s campaign platform has yet to be priced into the stock market.
While the headlines focus on trade proposals and tariffs, Bank of America’s top stock strategist said the promise of deregulation could spark further upside in the stock market.
In a Thursday note, equity strategist Savita Subramanian said deregulation is «the last bullish theme» that has yet to be priced into the stock market.
«Policy headlines have been dominated by tariffs – perceived to be growth-negative – but a growth-positive component of Trump 2.0 is deregulation, via cost cutting and efficiency gains,» Subramanian said.
Trump spearheaded his wave of deregulation with an executive order signed on January 31 that required the elimination of 10 regulations for each new regulation issued.
«The Order requires that whenever an agency promulgates a new rule, regulation, or guidance, it must identify at least 10 existing rules, regulations, or guidance documents to be repealed,» the White House said last month.
Another example of Trump’s deregulatory agenda is DOGE’s efforts to limit the functions of agencies like the Consumer Financial Protection Bureau, essentially halting their work to police banks and other financial institutions.
According to Subramanian, this deregulatory theme suggests that the stock market may not be as overvalued as it looks on paper. The bank highlighted that 19 out of 20 valuation metrics it tracks are above their historical average.
The action plan for investors to take advantage of Trump’s deregulation plans is clear: buy sectors that have been most impacted by prior periods of strict regulation.
Those include financials, especially large banks, as well as consumer, commodities, transport, and capital goods sectors.
«Industries that presumably stand to gain most are those that are most regulated,» Subramanian said, adding that these same groups trade at steep discounts to sectors that have been least impacted by prior years of regulation, like information technology and communication services.
The ultimate deregulation trade, according to Subramanian, is to go long financial stocks and avoid technology stocks, especially considering that financials were heavily regulated since the 2008 Financial Crisis, while technology saw the «lightest increase in regulations.»
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