A major component of President Donald Trump's campaign agenda remains underappreciated by the stock market.
While much of the media spotlight remains on trade policies and tariffs, Bank of America’s chief equity strategist, Savita Subramanian, suggests that the potential impact of deregulation could unlock further market gains.
In a recent note, Subramanian describes deregulation as "the last bullish theme" that has yet to be fully reflected in stock prices.
"Policy discussions have been dominated by tariffs, which are widely seen as growth-negative. However, a pro-growth element of Trump’s second-term agenda is deregulation, which could drive cost reductions and efficiency improvements," Subramanian explains.
Trump initiated his deregulation push with an executive order signed on January 31, mandating the repeal of 10 regulations for every new one introduced.
"The order specifies that any agency issuing a new rule, regulation, or guidance must identify at least 10 existing rules for elimination," the White House announced.
Another significant example of this policy shift is the administration’s move to curb the power of regulatory agencies such as the Consumer Financial Protection Bureau, effectively limiting their oversight of banks and financial institutions.
According to Subramanian, this regulatory rollback implies that current stock market valuations may not be as inflated as they appear. Bank of America points out that 19 of the 20 valuation metrics it monitors remain above their historical averages.
For investors looking to capitalize on the benefits of deregulation, the strategy is straightforward: focus on sectors that were previously burdened by extensive regulatory constraints.
Key beneficiaries include financials—particularly large banks—as well as consumer goods, commodities, transportation, and capital goods.
"The industries likely to gain the most are those that have historically faced the heaviest regulatory scrutiny," Subramanian notes, adding that these sectors currently trade at significant discounts compared to industries that have experienced minimal regulation, such as technology and communication services.
For advisors structuring portfolios, Subramanian identifies financial stocks as the ultimate deregulation play while advising caution in the technology sector. Financials have been subject to heightened regulatory oversight since the 2008 Financial Crisis, whereas technology companies have largely operated with minimal intervention.
"At present, these two sectors occupy opposite ends of the valuation spectrum, but historical trends suggest that deregulation could drive a revaluation—financials benefiting from an upward adjustment, while tech faces relative de-rating," she states.
Investor sentiment appears to be aligning with this thesis. Year-to-date, the financial sector has delivered a 7% return—more than double the technology sector’s 3% gain over the same period.
For wealth advisors and RIAs, this underscores a compelling opportunity to rebalance portfolios toward financials and other regulation-sensitive industries while managing exposure to overvalued sectors like technology. As policy shifts take shape, positioning clients for potential upside in underappreciated areas could drive long-term outperformance.
