Bank stocks have outperformed in recent weeks as investors see an improved regulatory environment if former President Donald Trump returns to the White House, according to Bank of America. The Invesco KBW Bank ETF (KBWB) , which tracks the KBW Bank Index, has climbed more than 6% since the start of October. By comparison, the S & P 500 has added less than 2% in the same period. "We believe that the recent outperformance in banks stocks ... has at least partially been driven by the potential for a change in administration," research analyst Ebrahim Poonawala wrote to clients in a Sunday note. "A Republican win would likely be viewed most positive for bank stocks in terms of returning to balance the regulatory environment." KBWB .SPX mountain 2024-10-01 The KWBW vs. S & P 500 in October That regulatory backdrop would likely be better for bank stocks because of who Trump would appoint in agencies such as the Department of Justice and Consumer Financial Protection Bureau, Poonawala said. He pointed to Citigroup , Wells Fargo , TD Bank and New York Community -- which have faced regulatory turmoil -- as some of the names that could particularly benefit from more relaxed rules under Trump. Bank stocks can also get a boost in this scenario given the potential for extended tax cuts and an increase in domestic investment, according to the analyst. On the other hand, he said concerns around wider deficits pushing up Treasury yields or tariffs can hurt economic activity. Either a Trump win with a split government or a Republican sweep would be seen as bullish for this group of stocks, Poonawala said. But if Democrats win big in the White House and elsewhere in November, he said to expect a negative reaction -- at least initially -- given the potential for increased regulations and taxes. If Vice President Kamala Harris wins and there's a spilt government, Poonawala said to anticipate "more of the same." Notably, Poonawala said this outcome could dent the excitement around mergers and acquisitions for banks and other industries that have faced antitrust battles. That's because of what he sees as a current Justice Department that's wary of large deals. Poonawala added that higher corporate taxes under Harris could hurt loan demand. To be sure, earnings results released this month from several large banks can explain some of the outperformance. However, while Poonawala described the releases as "solid," he said there's still near-term risk on the stocks due to the election. With October's outsized gains, the KBWB fund is now 26% higher on the year. That puts it ahead of the S & P 500, which has gained about 23%.