Investors received a big boost on January 15 with a December, 2024 Consumer Price Index report showing core inflation rose less than expected. This reassured Wall Street the Federal Reserve could continue to lower interest rates in 2025. The Fed had curbed its benchmark Federal Funds rate three consecutive times in the second half of 2024 but had signaled a halt – or even rate hikes – for 2025 as the US economy kept growing.
The bond market acted accordingly, with the 10-year US Treasuries sliding to 4.60% by Friday, January 17. If that becomes a trend, lower Treasury rates are good news for individuals and companies for things like mortgage loans, credit cards, and business loans.
The news also resonated with big bank stocks, which prosper when loans and credit are in rising demand.
So today, we’re looking at the three best stocks to buy for 2025.
Goldman Sachs (GS) shares are up 9.4% over the January 13-to-17 timeframe, while Bank of New York Mellon (BK) shares rose by 8.2% over the same time period. Citi (C) was up 9.7%, and Wells Fargo (WFC) stock soared 8.7%.
“The banking and finance sector, after being unexciting for quite some time, is finally showing some excitement,” says J. Daniel Chi, professor of finance at the University of Nevada Las Vegas. “One reason is that the new administration will likely bring a more friendly regulatory environment for banks.
Another reason is the value proposition for financial stocks is becoming more compelling due to encouraging high technological valuations, Chi notes. “Additionally, a steepening yield curve is net positive for banks. “Of course, the recent higher yield at the long end has negative implications, but an increasing term spread is net positive for bank profitability.”
[Here’s What Wall Street’s Earnings Insiders See (That You’re Missing)]
A New Administration May Ease Bank Regulation Angst
Other sector experts say banks are uniquely positioned for investors seeking some upside.
“For the first time since Glass-Steagall was repealed in 1999, we could see widescale deregulation and pivot away from a ‘do as we say or else’ relationship between financial institutions and regulators,” says Mike Treacy, head of market risk at Apex Fintech Solutions in Chicago, Il. “As (JPMorgan Chase CEO) Jamie Dimon suggested last October, “It’s time to fight back.”
That may be the case with Michael Barr, the Federal Reserve vice chairman and Gary Gensler exiting the US Securities and Exchange Commission. “Now, the floodgates could open,” Treacy says. “We can expect less regulation, less capital requirements, more M&A, more trading, and new revenue streams adjacent to crypto’s legitimization as an asset class.”
Larger banks may also find themselves in a win-win situation with the Fed.
“Even the Federal Reserve’s hawkish pivot in December could keep longer-term rates elevated, especially if we assume 3% is the new terminal rate,” Treacy adds. “Elevated interest rates could improve net interest income, especially for larger financial institutions.”
Potential deregulation could also profoundly impact small and midcap banks who struggle to compete with the big boys “who have a large capital moat,” Treacy says. “Additionally, now that the big boys have reported robust Q4 earnings this week, the biggest question among this cohort is who can change and scale in a deregulated market that could increase competition.”
Three Banks In a Good Spot for Investors Right Now
Aside from the big bank stocks listed above, which should all benefit from more lenient and opportunistic conditions in 2025, these stocks are also worth a look.
US Bancorp (USB). Trading at $48 per share in mid-January, USB shares have bounced back in January. Analysts are eying the stock favorably, with Morgan Stanley afforming its buy position with a $60 price target.
What’s more, USB offers a tidy 4.16% dividend yield, giving sector investors a juicy dividend along with a stock appreciation opportunity in 2025.
M&T Bank (MTB). Trading at $195, M&T Bank also offers a solid dividend yield of 2.76%. Its earnings picture brightened after its most recent quarterly numbers were released on January 17, with MTB besting analyst expectations in key areas like loans and deposits, income, and operating capital. Bank executives also indicated that it could wade into the share buyback waters with a $2 billion buyback target for 2025.
The same day, Truist raised its target price on MTB shares to $236 from $233.
Capital One (COF). Almost one year after its $35 billion Discover acquisition, Capital One has seen its share price rise by 7% year-to-date and 49% over the past year. Altogether, five industry analysts have readjusted COF earnings upward in January. Singularly, UBS upgraded COF to a buy with a price target of $239 per share. The stock is currently trading at $190 per share.
On the downside, COF was just sued by the US Consumer Financial Protection Bureau, charging the company over what CFPB calls lost interest for consumers totaling $2 billion.
Investors can expect that case to take years to wind its way to a verdict (or, more likely, a settlement). Meanwhile, the financial giant’s underlying earnings picture and a presumably more friendly CFPB when Team Trump takes office will make COF a good bet for 2025.
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