SKN | Julius Baer Favors Financials Going Into 2026 as Rate Cuts Loom

Julius Baer is positioning financial stocks as a core opportunity heading into 2026, maintaining an overweight stance on the sector despite expectations that U.S. interest rates will begin to ease. The Swiss private bank believes that improving fundamentals, supportive policy dynamics, and attractive valuations provide a favorable backdrop for banks and related financial services companies over the medium term.

In a recent investment outlook, Julius Baer said financials remain its preferred cyclical sector, even as it forecasts two Federal Reserve rate cuts next year. While most policymakers anticipate only one cut, the bank expects a more accommodative monetary environment that could support economic activity without significantly undermining bank profitability.

Banks Benefit From Yield Curve Dynamics and Loan Growth

A key pillar of Julius Baer’s bullish view is the anticipated re-steepening of the yield curve. A steeper curve typically supports banks’ net interest income, allowing lenders to earn more on loans relative to deposits. According to the bank, this dynamic should help offset modest declines in policy rates and sustain earnings momentum.

Improving loan growth is another supportive factor. As credit demand stabilizes and economic uncertainty recedes, banks are expected to expand lending across consumer, corporate, and mortgage segments. Combined with disciplined cost control and capital management, this environment strengthens the case for higher profitability and shareholder returns.

Julius Baer also highlights the potential for enhanced buybacks, noting that a more favorable regulatory stance in the U.S. could ease capital constraints and free up balance sheets. This, the bank argues, creates a “powerful” backdrop for both earnings growth and capital distributions.

Asset Managers, Payments, and Data Services in Focus

Beyond traditional banking, Julius Baer remains constructive on asset managers, payment networks, and financial data services. Rising asset prices and renewed investor confidence are expected to lift assets under management, supporting fee income and operating leverage for leading asset managers.

The recovery in mergers and acquisitions activity, alongside a reopening of initial public offerings, is also likely to bolster non-interest revenue streams across the financial sector. Total assets under management at the world’s 500 largest asset managers have surpassed $140 trillion, exceeding the previous peak reached in 2021, underscoring the scale of opportunity.

Payment networks are another area of confidence. Julius Baer describes concerns around disruption from stablecoins as overdone, arguing that established platforms continue to benefit from global transaction growth, digital banking adoption, and entrenched network effects.

Selective Approach to Insurance and Bonds

In insurance, the bank favors non-life insurers over life insurance and reinsurance providers, citing lower sensitivity to market swings. While pricing cycles may have peaked, Julius Baer prefers large, diversified insurers with strong franchises and resilient capital positions.

On the fixed-income side, the bank expects U.S. Treasury yields to remain largely rangebound. The Federal Reserve’s evolving balance sheet strategy, including targeted purchases at the short end, is seen as supportive of curve stability rather than a catalyst for sharply lower yields.

Looking ahead, Julius Baer’s outlook suggests that financials are well-positioned to navigate a transitioning rate environment, offering investors a blend of income, growth, and resilience as 2026 approaches.

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