The Financial Sector Could Keep Rallying in 2025: How to Invest

The financial sector could be poised to continue excelling through 2025. Bird stocker TH/Shutterstock

The financial sector shined in 2024, and many analysts believe it will continue to rocket through 2025. The financial services sector could continue to benefit from a strong economy as well as a deregulatory agenda under the Trump administration.

And so far, so good. Despite the Federal Reserve’s January decision to pause interest rate cuts, the financial sector continues to outperform the broader market. Year to date, the S&P 500 financials index returned 7.62 percent. The S&P 500 returned 3.24 percent.

So, how can you invest in the financial sector? First, let’s take a closer look at what we can find.

What’s the Financial Sector?

The financial sector includes banks, brokerages, asset managers, payment processors, insurance companies, credit card unions, and more. These companies run money and essentially are partly responsible for keeping the economy going.

Virtually every person and business is in one way involved. If you’ve used a credit card, transferred money via an app, or visited an ATM, you’ve engaged in the financial sector.

So that’s a lot of companies and services to consider. But financial advisory firm Edward Jones recommends investors begin by testing the waters of the banking subsector and then gaining exposure to insurance and diversified financials. An analysis by Fidelity Investments also expressed optimism for diversified banks along with transaction and payment processing companies such as Mastercard and Visa.

Bank Stocks

The United States houses more than 4,500 banks, according to research by MX Technologies.

That’s a lot to dig through. So here’s just a sliver of the top bank stocks today:

• Wells Fargo & Co.
• M&T Bank Corp.
• JPMorgan Chase & Co.
• Citizens Financial Group Inc.
• Bank of America Corp.
• HSBC Holdings PLC
• PNC Financial Services Group Inc.

You can also take a look at some of the largest companies in the greater financial services sector:

• Berkshire Hathaway Inc.
• Visa Inc.
• Mastercard Inc.
• Morgan Stanley
• The Goldman Sachs Group Inc.

But as with any company, it’s critical to do your research. Take a look at their profits, return on equity (RoE), earnings per share (EPS), dividend yields, and more.

It’s also important to note that fear can spread through the banking and overall financial services sector. At the beginning of 2024, for example, Silicon Valley Bank and other regional banks collapsed. However, this scenario was mostly driven by internal management issues within these banks and did not extend into a larger ripple effect. But it serves as a word of caution.

Financial Services ETFs

You can bypass analyzing and picking multiple stocks on your own by investing in exchange-traded funds (ETFs). These are professionally managed funds that invest in a variety of stocks. Here are the top financial services sector ETFs:

• The Financial Select Sector SPDR Fund
• Vanguard Financials Index Fund ETF
• PIMCO Enhanced Short Maturity Active Exchange-Traded Fund
• SPDR S&P Regional Banking ETF
• iShares U.S. Financials ETF

Risks of Investing in Bank Stocks

Although bank stocks can be stable, nothing comes without risk. And banks as well as other financial institutions and fintech companies share some specific challenges.

Financial institutions such as banks are cyclical. This means they are extremely sensitive to economic downturns such as recessions.

When massive amounts of people lose their jobs, they tend to fall back on their debts as they prioritize necessities. This could result in losses from loans, credit cards, and other lending products offered by financial institutions. Moreover, consumers may cut back on spending during economic downturns. This means they may lock up their credit cards, avoid taking on new debt such as mortgages, and spend less. These could have a negative impact on financial institutions.

Another major risk to the financial sector is interest rate volatility. But here, it can get very complex. A low interest rate environment can cause consumers to flock to products like savings accounts and personal loans, but the banks may not profit as much because of the low rates. When rates are high, consumers and businesses may back away from products like loans and mortgages—major revenue sources for many financial services companies.

Ultimately, however, it comes down to how well-equipped a particular financial institution is to weather the storm. JP Morgan Chase, for example, ran its own stress test during the COVID-19 pandemic and determined it would survive with a 35 percent drop in gross domestic product (GDP) and 14 percent unemployment.

“Even under this scenario, the company would still end the year with strong liquidity,” JP Morgan CEO Jamie Dimon wrote in a letter to shareholders.

So it’s important to dig deep into these stocks and the ETFs or mutual funds that include them. The Fidelity analysis projected diversified banks and payment processors could hold strong in 2025. The most diversified banks can have more than a dozen points of revenue and have embraced fintech and the future of financial services.

The Bottom Line

The financial sector could be poised to continue excelling through 2025 after a banner year in 2024. A resilient economy, the ease of deregulation, and emerging technologies could fuel this growth. So financial sector investments could prove to be a boon to a diversified portfolio. But it’s important for investors to pay attention to the key risks this sector faces.

The Epoch Times copyright © 2025. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.