The financial sector was shining in 2024, and many analysts believe they will continue to use rockets until 2025. The financial services sector can benefit from not only the deregulation agenda under the Trump administration, but also from a strong economy.
And so far, it’s very good. Despite the Federal Reserve’s January decision to suspend interest rate cuts, the financial sector continues to outperform the broader markets. Up until the year, the S&P 500 Financials Index returned 7.62%. The S&P 500 returned 3.24%.
So how can you invest in the financial sector? First, let’s take a closer look at what we can find.
What is the financial sector?
The financial sector includes banks, brokerage companies, asset managers, payment processors, insurance companies, credit card associations, and more. These companies run money and are essentially partially responsible for maintaining the economy.
Virtually everyone and business are involved in one way. If you use your credit card, transfer money via the app, or visit an ATM, you are engaged in the financial sector.
Bank Stocks
According to a survey by MX Technologies, there are over 4,500 banks in the US.
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Financial Services ETF
By investing in Exchange-Traded Funds (ETFs), you can analyze and select multiple stocks yourself. These are professionally managed funds that invest in a variety of stocks. This introduces the top Financial Services sector ETFs. Financial Select Sector SPDR Fundvanguard Financial Index Fund ETFPIMCO Extension FundSPDR S&P Regional Banking Etfishares US Financials ETFs trading on short-term mature active exchanges
Risks of investing in bank stocks
Bank stocks may be stable, but there is nothing without risk. Banks, other financial institutions and fintech companies share some specific challenges.
Financial institutions such as banks are periodic. This means that you are extremely sensitive to recessions such as recessions.
When a large number of people lose their jobs, they tend to rely on debt as they prioritize essentials. This could result in losses from loans, credit cards and other loan products offered by financial institutions. Additionally, consumers can reduce spending during the recession. This means they avoid locking their credit cards, underwriting new debts such as mortgages, or spending less. These can have a negative impact on financial institutions.
Another major risk in the financial sector is interest rate volatility. But here it can be very complicated. A low-interest environment can cause consumers to flock to products like savings accounts and personal loans, but banks may not make much profit due to low interest rates. If the fees are high, consumers and businesses can move away from products such as loans and mortgages. This is a revenue stream for many financial services companies.
But ultimately it comes down to how well the equipment certain financial institutions are equipped to survive the storm. For example, JP Morgan Chase conducted its own stress tests during the Covid-19 pandemic and determined that it would survive with a 35% drop in gross domestic product (GDP) and 14% unemployment.
Therefore, it is important to dig deeper into these stocks and the ETFs or mutual funds that contain them. A faithful analysis suggests diversified banks and payment processors could become stronger in 2025. The most diverse banks have over 12 revenue points and employ the future of fintech and financial services.
Conclusion
The financial sector may be ready to continue excelling until 2025 after the 2024 banner year. A resilient economy, ease of deregulation, and new technologies could drive this growth. Therefore, investment in the financial sector may prove to be a boon for a diverse portfolio. However, it is important for investors to pay attention to the important risks facing this sector.
Epoch Times Copyright©2025. The views and opinions expressed are those of the author. They are for general informational purposes only and should not be interpreted or interpreted as recommendations or solicitations. Epoch Times does not provide investments, taxes, legal, financial planning, real estate planning, or other personal financial advice. Epoch Times is not responsible for the accuracy or timeliness of the information provided.
