Given the reasonable long economic growth, rising interest rates and benign credit in the United States, U.S. financial service company Keefe, Bruyette and Woods (KBW) gives an upbeat outlook for the financial sector in 2018, according to a press briefing by KBW Monday.

"We consider a very good shape for the financial services industry (in 2018), especially United States, but to a lesser extent also globally," Frederick Cannon, executive vice president and global director of research at KBW, said at one of FPC's (Foreign Press Center) Wall Street Briefing Series on Monday.

Cannon outlined the main reasons which made him optimistic about the financial sector.

First, global economic growth picked up in 2017 and is poised for further growth in 2018. The European economic recovery appears to have finally taken hold, U.S. unemployment is near historic low levels with steady GDP (gross domestic product) growth, and emerging market economies are reaccelerating.

Second, some of the economic promises of the 2016 U.S. election by the Trump administration are set to take hold in 2018, with more industry-friendly regulators in place.

Third, financial sectors will benefit from the country's tax reform. According to the KBW, the tax cut could increase EPS (Earnings per share) by as much as 16 percent for the financial industry assuming all benefits fall to the bottom line.

In late December, U.S. President Donald Trump signed a 1.5-trillion-dollar tax cut bill into law, which cut the corporate income tax rate to 21 percent from 35 percent and became effective from January, 2018.

Fourth, continued economic growth should encourage the Federal Reserve to continue to tighten short-term rates and accelerate their exit from the quantitative easing. This should allow for higher interest rates and some increase in market volatility, improving trading activity from the current depressed level.

However, Cannon also pointed out three potential roadblocks that may drag the financial sector.

The market entered the end of 2017 with credit spreads near historic lows, and for a number of reasons, most likely geopolitical, credit concerns could increase widening spreads, which would put downward pressure in financial shares, he said.

Meanwhile, if the U.S. Congress is retaken by Democrats in the 2018 mid-term elections, there could be a backlash against the reduced regulation currently underway.

The lingering low inflation also could be an obstacle. If inflation remains muted, central banks could revert to more expansionary policies, with lower rates reducing the attractiveness of the financial sector.

Overall, "we continue to believe the financial sector should do well this year, should be at least in line with if not better than the S&P (500 index)," Cannon said.