We see opportunity in regional bank stocks, says Citizens' Ryan

Core Viewpoint - The banking sector has shown significant performance in 2023, with major banks experiencing substantial stock price increases, driven by favorable market conditions and sector rotation trends. Group 1: Performance Metrics - The KBW bank index is up 32% year to date, outperforming the broader S&P index, which is up about 18% [1] - Notable stock performances include Croup up 71%, Goldman Sachs up 58%, and Morgan Stanley up approximately 45% this year [1] Group 2: Market Drivers - Business conditions were strong in 2025 and are expected to improve further in 2026, with capital markets gaining momentum and a better loan backdrop [3] - Deregulation has allowed banks to utilize capital more effectively, leading to improved returns [3] - Sector rotation and technical factors have contributed to the inflow of approximately $30 billion into financial ETFs last year, which is anticipated to continue into 2026 [4] Group 3: Future Outlook - The positive business momentum is expected to accelerate into 2026, suggesting continued investment in major banks and regional banks [5] - Ancillary firms, such as Schwab and certain fintech companies, are also expected to benefit from these trends [5] Group 4: Risks and Considerations - The macroeconomic environment is a critical factor; any deterioration could negatively impact the banking sector [7] - A continuation of capital markets recovery is essential, as M&A volumes were up 40% in 2025, primarily driven by large deals, and a broader engagement from financial sponsors is anticipated for 2026 [8][9] - The market is banking on the benefits of deregulation to materialize, with expectations for capital to be reallocated internally [9]