U.S. financial stocks are enjoying a banner year in 2024, with the sector posting the strongest yearly return in nearly three decades, fueled by the spectacular resilience of the American economy and soaring investor optimism for deregulation following Donald Trump's November election victory.
The iShares U.S. Financial ETF IYF has skyrocketed 34% year-to-date, representing the fund's best annual performance since its launch in 2001.
Similarly, other financial-focused ETFs have seen strong gains. The Financial Select Sector SPDR Fund XLF surged 31.7%, its strongest rally since 2013, while the Vanguard Financials ETF VFH climbed 32.4%.
Chart: A Year To Remember For Financial Stocks
The Financial Sector’s Biggest Winners In 2024
This year has produced standout performances from a range of individual financial stocks. Below is a list of the 10 best-performing financial equities of 2024 within the IYF ETF:
Name | Price Chg. % (YTD) |
Robinhood Markets, Inc. HOOD | 242.28% |
Interactive Brokers Group, Inc. IBKR | 118.22% |
Jefferies Financial Group Inc. JEF | 102.81% |
Apollo Global Management, Inc. APO | 91.31% |
KKR & Co. Inc. KKR | 88.71% |
Coinbase Global, Inc. COIN | 81.72% |
Virtu Financial, Inc. VIRT | 80.90% |
Evercore Inc. EVR | 74.57% |
SoFi Technologies, Inc. SOFI | 68.99% |
Blue Owl Capital Inc. OWL | 66.88% |
Why Financial Stocks Soared In 2024
The 2024 rally in financial stocks has been driven by a potent cocktail of strong economic growth, declining interest rates, and deregulation optimism.
The U.S. economy demonstrated remarkable resilience, with economic growth accelerating from 1.6% in the first quarter to 3% in the second quarter, and maintaining a solid 2.8% in the third quarter.
Survey data for December further underscored this momentum, showing private-sector activity expanding at its fastest pace since April 2022, with particularly strong growth in the services sector—the backbone of the financial economy.
Bank of America’s global economics team recently summarized the sentiment, stating, “Pro-growth policies like deregulation of financial services and energy, as well as lower taxes, are boosting market sentiment and asset prices.”
One of the most critical tailwinds was the de-inversion of the U.S. yield curve. The Federal Reserve's decision to ease interest rates, coupled with steady economic growth and resilient inflation, flipped the gap between short- and long-term Treasury yields. This dynamic allowed banks to borrow cheaply via short-term funding and lend at higher, long-term rates—improving net interest margins and boosting profitability.
Mortgage rates, for example, remain high because they are linked to longer-dated Treasury yields, even as interest rates have declined.
"Economic growth data has been coming in generally better than expected lately, which has helped push Treasury yields higher, while at the same time pricing out the need for an aggressive rate-cutting campaign by the Fed," LPL Financial said in a recent note.
What's Next for Financial Stocks In 2025?
Heading into 2025, Wall Street sees more tailwinds for the financial sector, particularly from deregulation. "We expect a broad deregulatory push benefiting energy and financial services," Bank of America said. The firm also noted that deregulation in the banking system could ease credit constraints while stabilizing the financial system, especially given the rapid rise of private lending, which remains largely unregulated.
According to Goldman Sachs analyst Richard Ramsden, large-cap banks remain optimistic about the economy. "Healthy consumer spending trends and strong corporate balance sheets have supported a constructive outlook," Ramsden said in a recent note.
However, regional banks remain cautious about loan growth, with many pointing to a potential rebound in early-to-mid 2025. While client sentiment has improved post-election, this optimism hasn't yet translated into higher lending activity.
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Image created using artificial intelligence via Midjourney.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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