Jan. 6 at 6:54 PM
U.S. banks enter 2026 with a solid operating environment, but upside for stocks looks limited after a strong rally. The sector remains defensively positioned if markets turn volatile, though returns are expected to be only mid- to high-single digits. Fundamentals remain supportive, with above-normal pre-provision revenue growth, stable credit quality, and capital levels near record highs.
Baird downgraded Wells Fargo and KeyCorp to underperform on valuation concerns. Earnings should benefit from modest loan growth, stable fee income, and asset repricing that lifts net interest margins in early 2026. A more favorable regulatory backdrop could support bank M&A and higher capital returns.
Still, valuations already reflect much of the good news, with bank stocks trading about 5%–10% above fair value. Baird expects loan growth of roughly 3%–4% in 2026, manageable credit costs, and sees better value in regional banks, favoring several names over money-center peers.
$WFC $KEY $FITB $CMA