Fed cut rate by June 2026 will fuel bank stocks, says RBC's Cassidy

Core Viewpoint - The financial sector is experiencing a favorable macroeconomic environment, leading to record highs and positive outlooks for 2026, particularly for regional banks due to the steepening yield curve [1][2]. Group 1: Market Trends - The yield curve is expected to steepen, which is beneficial for banks as it leads to better interest rate spreads [2][7]. - If the Federal Reserve cuts interest rates by 25 to 50 basis points before June, it will further support bank stocks, especially regional ones [3]. Group 2: Regulatory Environment - The regulatory landscape has shifted significantly under the current administration, with proposals that are supportive of the banking industry, including the upcoming Basel 3 endgame which could enhance profitability and valuations [4]. - The regulatory changes have been rapid and constructive, indicating a more favorable environment for banks [4]. Group 3: Performance of Different Bank Segments - Money center banks and investment banks have performed exceptionally well this year, largely due to strong capital markets and a robust advisory business, potentially marking this year as the second-best after 2021 [6]. - Regional banks are anticipated to catch up to larger banks in 2026, driven by improved interest income from the steepening yield curve and increased loan growth [7]. Group 4: Loan Growth Expectations - Banks are expected to return to more aggressive lending practices in 2026, with potential upside surprises in loan growth, particularly in commercial and industrial loans and commercial real estate [8].