Chart of the Week

The Financials sector remains one of the most attractively positioned areas of the market as we approach year-end, in our view. Banks have strong balance sheets, diversified lending portfolios, and fee-based revenue streams that provide ballast against changing interest-rate dynamics. We see payments and fintech firms continuing to lead long-term digitization and embedded finance trends; insurers benefiting from disciplined underwriting and elevated reinvestment yields; and asset managers capturing flows into income strategies and alternative investments.

Valuation is a key advantage. As the chart shows, Financials (as of September 30, 2025) have been trading at a significant discount to the S&P 500 Index. We believe the steepening of the yield curve adds another tailwind — banks benefit from wider spreads on new lending, insurers can reinvest at higher rates, and asset managers stand to capture renewed flows into fixed income, potentially narrowing the valuation gap.

We believe investors seeking income or diversification from more growth-oriented allocations may want to consider increased exposure to the Financials sector, given its attractive valuation and the improving macroeconomic backdrop. We believe the steepening yield curve and improving capital markets backdrop has the potential to support earnings momentum across several of our favorable sub-sectors, including Diversified Banks, Capital Markets, Transaction & Payment Processing Services, Property & Casualty Insurance, and Insurance Brokers.

Each asset class has its own risk and return characteristics. The level of risk associated with a particular investment or asset class generally correlates with the level of return the investment or asset class might achieve. Stock markets, especially foreign markets, are volatile. Stock values may fluctuate in response to general economic and market conditions, the prospects of individual companies, and industry sectors.

Sector investing can be more volatile than investments that are broadly diversified over numerous sectors of the economy and will increase a portfolio’s vulnerability to any single economic, political, or regulatory development affecting the sector. This can result in greater price volatility. Investing in the Financial services companies will subject an investment to adverse economic or regulatory occurrences affecting the sector.

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