America’s largest banks are on the way to close the year 2025 with historic stock prices, strengthening balance sheets and regulatory freedom, per a Yahoo! Finance report — and investors in banking ETFs are taking notice.
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Bank stocks are performing well as compared to other stocks in the market.
One major gauge that follows the largest lenders in the country is the KBW Bank Index (BKX), which is up 30% year to date, outperforming the S&P 500 Index. Stocks of JPMorgan Chase & Co (NYSE:JPM), Bank of America Corp (NYSE:BAC), and Wells Fargo & Co (NYSE:WFC) hit record levels with Citigroup Inc (NYSE:C) exceeding its book value for the first time in seven years, according to Yahoo! Finance. Analysts note that this is an indication of more advances in the coming year of 2026.
Wells Fargo analyst Mike Mayo said there is more upside than he had expected coming into the year, and the large banks are likely to continue outperforming next year as well.
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Bank ETFs Follow The Money
For those investing in ETFs, the result of this surge has been the strong performance of funds heavily invested in large lenders, such as the State Street Financial Select Sector SPDR ETF (NYSE:XLF), Invesco KBW Bank ETF (NASDAQ:KBWB), and the State Street SPDR S&P Bank ETF (NYSE:KBE), all of which have rallied between 14% and 30% so far this year.
It seems that performance is increasingly being driven by earnings growth and dealmaking momentum rather than simple interest-rate bets.
Wall Street Is Back As A Growth Engine
Capital markets activity is again a significant money earner. Global investment banking volumes are set to increase 10% year-over-year, the highest since 2021, according to Dealogic, cited in the Yahoo! Finance report.
Despite tariff-related fluctuations in the earlier months of the year and the postponement of IPOs due to the U.S. government shutdown, analysts forecast that the trading revenues for JPMorgan, Bank of America, Citigroup, Goldman Sachs Group Inc (NYSE:GS), and Morgan Stanley (NYSE:MS) are likely to reach record levels in 2025. Net income for the group is also forecast to reach a record high.
Industry leaders were also upbeat during a conference organized by Goldman Sachs, where Citigroup CFO Mark Mason said that capital markets are wide open to some extent, because global economies have to grow despite uncertainties.
Deregulation Unlocks Billions in Capital
Deregulation is also changing the investment thesis for bank ETFs. Goldman Sachs’ analysts predict American banks will be in a position to deploy $180 billion-$200 billion in excess capital by year’s end as a result of deregulatory policies adopted during the Trump administration.
The money is expected to be allocated toward stock repurchases, tech spending and an increasing number of mergers, which is good news for bank-packed ETF portfolios.
Profit Targets Are Rising
The major banks are also outlining ambitious profitability targets. Bank of America is targeting an ROTCE of 16% to 18%, Wells is targeting 17% to 18% after casting off the constraints associated with the 2016 fake accounts scandal. JPMorgan plans to invest $10 billion more in 2026 to boost credit cards and branches, employee compensation and AI efforts.
What This Means For ETF Investors
For fund managers, this change is significant. Bank ETFs are not merely interest-rate-sensitive value investments anymore, but are increasingly linked to capital markets, mergers and acquisitions, and business growth.
According to a statement cited in Yahoo! Finance, by a Goldman Sachs analyst Richard Ramsden, “If you want the economy to grow faster, somebody needs to finance it.”
With banks newly deregulated and expansion plans once again on the horizon, ETFs investing in financials may be on the cusp of a new cycle, one less about survival and more about capital allocation.
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