Finding Opportunities in Financials

The financial sector's current state and future prospects are examined, with Christian DeGrasse, financial sector specialist at Goldman Sachs, providing insights. Despite constructive earnings reports from banks and a positive outlook on capital returns and loan growth, the financial sector faces pressure from the software industry and rapid AI advancements. DeGrasse suggests that while rates and a widening 2s10s spread are generally supportive for banks, rate volatility could pose risks. He notes that deregulation could lead to new strategic growth areas for banks. DeGrasse favors banks, CRE brokers/servicers, and consumer finance, while expressing caution regarding info services and property/casualty insurance. He anticipates modest outperformance for the financial sector in 2026, excluding insurance, and is closely monitoring alternative earnings, unemployment rates, and the Fed's actions.