Will 2026 be a Great Year for Banks? ETFs in Focus

Group 1: Market Outlook - The banking sector is expected to have a strong year in 2026 due to favorable interest rates, improving credit demand, and active capital market activities [1] - The Invesco KBW Bank ETF (KBWB) has increased by 25.3% in 2025, outperforming the SPDR S&P 500 ETF Trust (SPY) which gained 17.1% [2] - The Finance sector ranks second among 16 Zacks classified sectors, with the Financial - Investment Bank category positioned in the top 11% of 243 industries [3] Group 2: Economic Indicators - The Federal Reserve is cutting interest rates, which may lead to a steepening yield curve, benefiting banks' net interest margins [4] - The financial sector trades at a forward price-to-earnings multiple of 11.47, significantly lower than the S&P 500's 20.01 [5] - Projected EPS growth for the financial sector is 9.80%, compared to 7.62% for the S&P 500, with the Financial - Investment Bank industry showing an 18.18% growth [6] Group 3: Corporate Activity - Despite trade uncertainties, banks report that corporate clients are actively pursuing mergers, issuing debt, and going public [7] - Volatility in the market is beneficial for banks' equities trading desks, driving profits through increased trading volume [8] Group 4: Earnings Performance - The Finance sector's total earnings grew by over 25.4% year-over-year, with 90.3% of companies beating EPS estimates [9] - Major banks like JPMorgan Chase, Wells Fargo, Citigroup, Goldman Sachs, Morgan Stanley, and Bank of America exceeded both revenue and earnings estimates [10] Group 5: Capital Markets and Consumer Confidence - The capital markets segment is showing improvement, supported by a favorable regulatory and monetary policy environment [11] - Consumer spending and household finances remain stable, with signs of improving credit demand and declining delinquencies [11] Group 6: Investment Opportunities - Financial ETFs such as iShares U.S. Financial Services ETF, Invesco KBW Bank ETF, and others are expected to perform well, with some hovering around 52-week highs [12]