SKN | Julius Baer Favors Financials Going Into 2026 as Rate Cuts and Yield Curve Dynamics Align

Julius Baer is maintaining an overweight position in financial stocks as it looks ahead to 2026, identifying the sector as its preferred cyclical allocation despite expectations that the Federal Reserve will cut interest rates during the year.

In a recent strategy note, the Swiss private bank said that financials continue to offer an attractive risk-reward profile. “Banks are supported by attractive valuations, improving loan growth, and a re-steepening yield curve,” Julius Baer noted, pointing to a combination of macroeconomic and regulatory factors that could underpin earnings momentum across the sector.

Banks Positioned to Benefit From Yield Curve Shifts

A key pillar of Julius Baer’s outlook is the anticipated re-steepening of the yield curve. As long-term interest rates remain relatively firm while short-term rates decline, banks stand to benefit from stronger net interest income. This dynamic improves profitability by widening the spread between lending rates and deposit costs, a crucial driver of earnings for traditional lenders.

The bank also highlighted signs of improving loan growth, suggesting that credit demand could strengthen as financing conditions stabilize. Combined with supportive valuations, these factors are seen as creating a favorable backdrop for bank equities in 2026.

In addition, Julius Baer expects non-interest income to gain importance. Rising asset values, a rebound in mergers and acquisitions activity, and a gradual reopening of the initial public offering market are likely to support fee-based revenues, further diversifying income streams for large financial institutions.

Asset Managers, Payments, and Insurers in Focus

Beyond banks, Julius Baer remains constructive on asset managers, payment networks, and data service providers. The bank forecasts steady revenue growth for leading asset management firms, driven by market appreciation and continued net inflows. Total assets under management at the world’s 500 largest asset managers have recently climbed to around $140 trillion, surpassing the previous peak reached in 2021.

Payment networks are also expected to continue growing, with Julius Baer downplaying recent concerns that stablecoins could significantly disrupt the sector. According to the bank, such fears are “overdone,” particularly given the entrenched position and scale advantages of established players.

Within insurance, Julius Baer favors non-life insurers over life insurance and reinsurance companies. It believes the pricing cycle in insurance may have passed its peak, making diversified groups with strong franchises better positioned than more market-sensitive peers.

Monetary Policy and Bond Market Implications

While most Fed policymakers currently anticipate just one rate cut next year, Julius Baer forecasts two additional cuts in 2026. The bank also pointed to the Fed’s evolving balance sheet strategy, including flexible reserve management purchases aimed at stabilizing short-term funding markets.

These purchases are expected to concentrate on the front end of the curve, supporting increased Treasury bill issuance and helping to maintain overall curve stability. For bond investors, Julius Baer’s outlook remains cautious but steady: US Treasury yields are expected to remain rangebound and broadly sideways from current levels.

Outlook

Overall, Julius Baer sees 2026 shaping up as a supportive environment for financials, where easing monetary policy, regulatory tailwinds, and improving credit dynamics converge. While risks remain, the bank believes the sector is well placed to deliver resilient earnings and shareholder returns in the next phase of the cycle.

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