2026 could be a decent year for regional banks. The yield curve has steepened, funding costs will be coming down, and credit quality trends seem to be headed in the right direction—all bullish developments for the industry's bottom line.I like to take a long term, buy-and-hold approach to investing, with a bias toward stocks that can sustainably post high quality earnings. Mostly found in the dividend and income section. Blog about various US/Canadian stocks at 'The Compound Investor', and predominantly UK ...

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].

Economic Outlook - New York Fed President John Williams expressed optimism about the economy, stating that some data is "pretty encouraging" and there is no sign of a sharp deterioration in jobs data [1] - He projected US GDP growth for this year to be between 1.5% and 1.75%, with expectations of growth picking up next year [1] Consumer Sentiment and Housing Market - The University of Michigan's consumer sentiment index for December was unexpectedly revised downward by -0.4 to 52.9, falling short of expectations [2] - Existing home sales in the US for November rose by +0.5% month-over-month to a 9-month high of 4.13 million, although this was below the expected 4.15 million [2][4] Stock Market Performance - Stock indexes showed positive movement, with the S&P 500 up by +0.67%, the Dow Jones up by +0.56%, and the Nasdaq 100 up by +0.94% [6] - A rally in cloud infrastructure stocks, particularly Oracle which rose by more than 7%, contributed to improved market sentiment [5][13] Bond Market Dynamics - Higher bond yields are limiting stock gains, with the 10-year T-note yield increasing by +2 basis points to 4.14% [3] - The yield curve has steepened since the last FOMC meeting, impacting T-note prices negatively due to increased demand for short-term government debt [10] International Markets - Overseas stock markets also experienced gains, with the Euro Stoxx 50 up by +0.40%, China's Shanghai Composite up by +0.36%, and Japan's Nikkei Stock 225 up by +1.03% [8] Company-Specific Movements - Carnival Corp reported Q2 adjusted EPS of 34 cents, exceeding consensus expectations of 24 cents, leading to a stock increase of more than +9% [16] - Whitefiber Inc saw a stock increase of more than +7% following a significant co-location agreement, representing around $865 million in contracted revenue [17] - Nike's stock fell by more than -8% after forecasting a decline in Q3 revenue and gross margins due to ongoing weakness in China [19] - Lamb Weston Holdings forecasted full-year net sales below consensus, leading to a stock decline of more than -23% [18]

Economic Indicators - Weekly initial unemployment claims in the US are expected to fall by 11,000 to 225,000 [1] - November CPI is projected to increase by 3.1% year-on-year, while core CPI is expected to rise by 3.0% year-on-year [1] - November existing home sales are anticipated to increase by 1.2% month-on-month to 4.15 million [1] - The University of Michigan's December consumer sentiment index is expected to be revised upward by 0.2 to 53.5 from the previously reported 53.3 [1] Labor Market - November nonfarm payrolls rose by 64,000, exceeding expectations of 50,000, while October nonfarm payrolls fell by 105,000, worse than the expected decline of 25,000 [3] - The unemployment rate in November increased by 0.1 to a four-year high of 4.6% [3] - November average hourly earnings rose by 0.1% month-on-month and 3.5% year-on-year, which is the smallest year-on-year increase in 4.5 years [2][4] Stock Market Performance - The S&P 500 Index fell by 0.32%, the Dow Jones by 0.293%, and the Nasdaq 100 by 0.14% [6] - Stocks are under pressure due to sluggish economic indicators, including a rise in the unemployment rate and stagnation in retail sales [5] - Energy producers are experiencing significant declines, with WTI crude oil falling over 3% to a 4.75-year low, impacting the broader market [5][14] International Markets - Overseas stock markets are also lower, with the Euro Stoxx 50 down by 0.68%, China's Shanghai Composite down by 1.11%, and Japan's Nikkei Stock 225 down by 1.56% [7] Interest Rates and Bonds - The 10-year T-note yield decreased by 0.8 basis points to 4.165%, influenced by the rise in unemployment and lower wage growth [8] - The 10-year breakeven inflation rate fell to a 1.5-week low of 2.240%, indicating falling inflation expectations [8] Company-Specific Movements - Pfizer Inc is down more than 4% after forecasting 2026 revenue below consensus estimates [16] - Humana is down more than 2% after its full-year adjusted EPS forecast fell short of expectations [16] - Archer-Daniels-Midland is down more than 2% following a downgrade by Morgan Stanley [17] - Cognex is up more than 5% after a double-upgrade by Goldman Sachs [17] - Ford Motor is up more than 1% after announcing a shift in production focus from electric to gas and hybrid vehicles [19]

For investors seeking momentum, State Street SPDR S&P Regional Banking ETF KRE is probably on the radar. The fund just hit a 52-week high and rose 43.3% from its 52-week low price of $47.06/share.But, are more gains in store for this ETF? Let’s take a quick look at the fund and the near-term outlook to get a better idea of where it might head:KRE in FocusThe underlying S&P Regional Banks Select Industry Index represents the regional banks segment of the S&P Total Market Index. The product charges 35 bps in ...

Core Viewpoint - Rising long-end yields in the Treasury market are defying historical trends and could indicate potential issues for investors, as highlighted by Apollo economist Torsten Slok [1][3][9] Group 1: Current Market Conditions - Since the Federal Reserve began cutting its policy interest-rate target in September 2024, long-dated Treasury yields have remained stubbornly high [1][3] - Yields on the 10-year and 30-year Treasury securities are currently lower than at the start of 2025, suggesting a potential for price appreciation in the bond market for the first time since 2020 [4] - The yield curve is steepening, with 30-year yields rising faster than 10-year yields, which is concerning as it indicates investors are demanding a greater premium for long-dated U.S. debt [8] Group 2: Historical Relationships - Long-end yields have broken away from their historical relationship with short-end rates, which typically move in tandem [5][6] - A longstanding correlation between long-end yields and crude oil prices is also deteriorating, indicating broader market shifts [7] Group 3: Implications for Investors - Investors across all asset classes are urged to consider the implications of the steepening yield curve and the unusual behavior of long-end yields [9]

Core Viewpoint - Short-dated U.S. Treasury yields are expected to decline due to anticipated Federal Reserve rate cuts, while long-term yields remain stable due to persistent inflation and fiscal concerns [1][4]. Group 1: Treasury Yields and Federal Reserve Expectations - A Reuters poll indicates that short-dated Treasury yields will decrease as the market anticipates rate cuts from the Federal Reserve [1]. - The benchmark U.S. 10-year Treasury yield is projected to trade around 4.10% in three to six months and rise to 4.17% in a year [4]. - Analysts express skepticism about the current pricing of rate cuts, suggesting that the Fed may only cut rates once more this year, contrary to market expectations of two cuts [6]. Group 2: Economic Conditions and Fiscal Concerns - High long-term yields pose a risk to the U.S. fiscal position, with estimates suggesting that tax and spending reforms could increase the national debt by over $3 trillion in the next decade [2]. - Current economic growth and inflation rates above the Fed's 2% target indicate that monetary policy may not be sufficiently restrictive [3]. - The ongoing government shutdown complicates the Fed's ability to make informed policy decisions, increasing the risk of missteps [4]. Group 3: Yield Curve Dynamics - The 2-year Treasury yield is expected to remain around its current level of 3.47% at year-end, with a gradual decline to 3.35% in a year [7]. - This scenario would lead to a steepening of the yield curve, with the spread between 10- and 2-year yields projected to increase from approximately 50 basis points to 82 basis points in a year [7].

Core Insights - The Federal Reserve's recent interest-rate cut is expected to further stimulate the booming ETF industry [1] - Analysts predict that lower interest rates will lead to a shift of assets from money market funds to ETFs, particularly benefiting the financial services sector and fixed-income products [2][3] ETF Industry Impact - The money market fund industry, valued at $7.4 trillion, may become less attractive as interest rates decline, prompting investors to seek higher returns in ETFs [2] - Historical context shows that the money market industry was approximately $5 trillion when interest rates were last at similar levels in late 2022 [3] - A significant capital flow into ETFs is anticipated as the Fed continues to ease policy, although the transition may not be immediate [3] Financial Sector Trends - Early flows indicate a trend towards financial sector ETFs, with nearly $750 million entering these funds on the day of the Fed's decision [2] - The financial services sector typically outperforms the broader market during periods of rate cuts [2] Fixed-Income Products - Fixed-income products are expected to gain attention in a post-rate cut environment, especially as the yield curve steepens [3] - There is uncertainty regarding whether investors will favor short-term or long-term bonds, as rate cuts enhance the attractiveness of fixed-income products [3][4] - Traditional fixed income may not provide the expected stability against portfolio volatility, raising questions about its pricing and benefits [3] Market Dynamics - Since March 2022, money market assets have increased by over $2.5 trillion, with more than $320 billion gained in 2023 alone [5]

Core Viewpoint - The Treasury yield curve is expected to steepen as investors seek higher compensation for perceived fiscal and political risks, influenced by the Trump administration's pressure on the U.S. Federal Reserve [1][2]. Group 1: Investor Sentiment and Market Dynamics - President Trump's ongoing criticism of the Federal Reserve and attempts to alter its voting board are undermining investor confidence in the Fed's authority [2]. - Yield curves steepen when long-term rates increase more rapidly than short-term rates, indicating concerns about inflation resurgence and larger U.S. deficits [3]. - A notable trading strategy this year involves buying shorter-term bonds while selling 30-year bonds, particularly in the 5-year/30-year yield curve [3]. Group 2: Yield Expectations and Economic Indicators - The two-year yield fell to 3.51% after reaching 3.578%, while the 10-year yield was at 4.03%, influenced by softer labor data that increased expectations for policy easing [5]. - If labor market softness continues, front-end yields are expected to decline towards the high-2% range, with long-end yields remaining in the 3%-4% range [6]. Group 3: Inflation and Fiscal Concerns - Investors are reportedly not receiving adequate compensation for inflation and fiscal risks, with the long end of the Treasury curve being particularly sensitive to these concerns [7]. - There is a trend of investors moving away from sovereign debt towards stocks and other assets, although back-end yields are anticipated to decrease in the near term due to Treasury buybacks and Fed communications [8].

Summary of Key Points from the Conference Call Industry Overview - The conference call primarily discusses the **Global Macro Outlook**, focusing on **US Rates**, **International Rates**, **Commodities**, **Currencies**, and **Emerging Markets** [3][4][8]. Core Insights and Arguments US Rates - Risks to the front end of the yield curve are biased lower due to labor market weakness, while concerns about Fed independence are pushing long-end rates higher [3][15]. - The first Fed cut is projected for **September 2025**, with expectations of **four sequential cuts**, bringing the funds rate target range to **3.25-3.5%** by **1Q26** [12][11]. - Anticipated **2-year Treasury yields** are expected to reach **3.50%** and **10-year yields** to **4.20%** by the end of **2025** [12][11]. International Rates - Developed market (DM) curves have steepened, particularly in the US, amid renewed focus on the long end of the curve [4][36]. - The European policy easing is losing momentum, impacting the overall yield curve dynamics [36]. Commodities - The oil market is expected to face a significant surplus, with price forecasts remaining unchanged for now due to uncertainties surrounding China's stock build [8][88]. - The European natural gas market is entering winter with historically low storage levels, leading to a bullish stance for **4Q25** and a price target of **42 EUR/MWh** [8][93]. - Copper prices are anticipated to face bearish pressure, potentially dropping to **$9,000/mt** due to unwinding demand from the US and China [8]. Currencies - The US dollar has not weakened despite recent yield curve steepening, attributed to domestic growth factors [56][58]. - Concerns regarding Fed independence and fiscal excesses are influencing the dollar's performance, with expectations of a bearish outlook [58][63]. - Fiscal policy is expected to be a key differentiator for FX, with the hypothesis that fiscal easing supports currencies in low-debt countries [63][59]. Emerging Markets - The resilience of global growth and downside risks in the US are supporting emerging market (EM) local markets [8]. - A recommendation to stay overweight (OW) in EM FX and local rates, while maintaining a market weight (MW) in EM corporates and underweight (UW) in EM sovereigns [8]. Additional Important Insights - The US Treasury is well-funded through **FY25**, but a significant funding gap is expected to emerge in **FY26**, prompting coupon auction size increases starting in **May 2026** [19][22]. - The passage of the **OBBBA** is projected to lead to a surge in T-bill issuance, with an estimated **$529 billion** of net T-bill issuance expected in the current quarter [25][23]. - Demand from foreign investors remains weak, with expectations of a shift towards more price-insensitive demand in the Treasury market [29][31]. This summary encapsulates the critical insights and projections discussed during the conference call, providing a comprehensive overview of the current macroeconomic landscape and its implications for various markets.