The run for the banks is akin to the run for some of the other hot sectors in the stock market. While their results for the third quarter were solid, the bottom line is very plain and simple: the sector is expensive, and priced at the very top of the historical range.

With money center banks trading at 12.6 times estimated 2018 earnings, versus a historical high of 12.6 times earnings, and regional banks at 13.8 times estimated 2018 versus a historical high of 13.8 times earnings, the message is clear. Without higher earnings something has to give.

A new JPMorgan research report makes the case that many investors are betting on a more hawkish Federal Reserve, which got a new leader this week, continuing to move rates higher in 2018. That combined with massive stock repurchase programs should push the top stocks higher.

The JPMorgan analysts only have five stocks they recommend buying now. Two are big money center leaders and three are top regional banks.

Bank of America

This company posted solid third-quarter results. Bank of America Corp. (NYSE: BAC) is a ubiquitous presence in the United States, providing various banking and financial products and services for individual consumers, small and middle market businesses, institutional investors, corporations and governments in the United States and internationally.

Bank of America operates some 5,100 banking centers, 16,300 ATMs, call centers, online and a mobile banking platform. Its third-quarter results beat Wall Street expectations despite a slowdown in its fixed-income trading business.

Bank of America investors are paid a small 1.72% dividend. The JPMorgan price target for the shares is $28.50, and the Wall Street consensus price target was last seen at $28.12. The stock closed trading on Thursday at $27.87 per share.

Citigroup

This top bank has broken out of a long trading range and could push even higher. Citigroup Inc. (NYSE: C) has approximately 200 million customer accounts and does business in more than 160 countries and jurisdictions. It provides consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, transaction services and wealth management.

Trading at a still very cheap 10 times estimated 2018 earnings, the bank looks very reasonable in what has become a pricey stock market. A continuing stock buyback program is a big positive. The company’s institutional clients group appears to be holding its ground, and this company also reported better-than-expected quarterly results, as its global consumer business showed further revenue growth.

Citigroup investors are paid a 1.72% dividend. JPMorgan has a $78.50 price target for the stock, while the posted consensus price objective is $76.05. The shares closed at $74.42 on Thursday.

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