The positive economic outlook—highlighted by an increasingly likely soft landing—along with industry-specific green shoots, such as favorable credit conditions, improving loan growth, higher net margins and fee income, and a more accommodating regulatory environment, is poised to drive an inflection point in financial services earnings. These factors should help create a return to capital and a favorable earnings environment through 2026, helping extend positive investor sentiment within financial stocks.
Despite recessionary concerns for most of the past two years, it is increasingly evident that the U.S. economy is not as weak as once thought, with overall momentum geared toward a soft landing.
This positive economic environment should benefit Financials—notably the banking and credit lending industries. Moreover, a bottom-up review of recent earnings reports points to several industry-specific green shoots that should help drive an inflection point in financial services earnings: beneficial credit conditions, improving loan growth, improving net margins and fee income, and an easier regulatory environment.
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