Interest rates declining favor regional banks, says Fundstrat's Tom Lee on his 2026 outlook

? (Anchor) 00:00.900

this santa rally is it a thing like like a fake virtual thing or is there a fundamental thing behind

Tom Lee (Head of Research) 00:07.820

it i think there's actual real stats behind it you know the stock traders almanac herschel guys have shown that this is a a good period between basically the one week before the end of the year and the first few

? (Anchor) 00:22.460

days why is it in other words i always thought like people around this time are maybe selling stocks to give money to charity pay bills those sort of things i would think could be downward pressure on the stock market at the end of the year and by the by the way especially on a

? (Anchor) 00:34.590

goodyear trying to lock in gains so it's in the calendar for for the record yeah

Tom Lee (Head of Research) 00:39.550

i mean i could say that i can see window dressing playing a role into your end you know yeah professional money managers want their winners to look good so they bid them up into the end of the year and then the first part of the new year i think makes sense because that's when

Tom Lee (Head of Research) 00:54.150

people allocate into into asset classes so there's money going into stocks in the beginning

? (Anchor) 00:58.830

of the year that's the first couple parts here i'm an anti technical person kelly

Kelly Evans (Anchor) 01:03.470

you don't like the chart stuff i don't

? (Anchor) 01:04.750

like the chart stuff i'm a fundamental guy and i want to know if there's fundamental stuff that was the thing tom let's talk about which which areas you think for the new year might be areas that are not well covered and maybe ones that are a little off the radar the sort of i

? (Anchor) 01:18.390

don't know the headwind tailwind tail risk things that are out there right now

Tom Lee (Head of Research) 01:23.670

yes i think in twenty twenty six there's going to be likely a more dovish fed and that dovish fed will allow business confidence to recover so the ism i think recovers back above fifty and that's going to be a tailwind for traditional sectors like industrials energy and basic

Tom Lee (Head of Research) 01:46.120

materials so i think those are sort of three groups that should do better in twenty twenty six than twenty twenty five but then there's also i think some tailwinds building for the financial services which you guys mentioned are doing well which is that financial services

Tom Lee (Head of Research) 02:01.790

companies are really big beneficiaries of AI and they're big beneficiaries of using blockchain technology both will allow them to reduce their employee intensity of their business and so i think the large tech forward banks are going to start to see margin expansion and trade

Tom Lee (Head of Research) 02:19.470

more like tech stocks in the future and that's why you know the JP morgan and the goldmans could actually be the next mag seven can i just

? (Anchor) 02:26.030

put a footnote or a footnote question on that what about the deregulation part mickey bowman over at the fed has been very busy trying to make it easier for banks relative to regulations is that part of your outlook as well with the banks

Tom Lee (Head of Research) 02:38.190

well that would be a very big tailwind too as you know banks have been strangulated especially post GFC and so it's removing some restrictions would be helpful as long as you don't remove safeguard rails i've seen

? (Anchor) 02:51.310

the market this year kelly trade a little bit on some of the deregulation news it wasn't something towards the as the year went on it got to be more serious and the idea that they were going to be like

Kelly Evans (Anchor) 03:01.510

never even i don't read the bread crumbs carefully so miserable you know but it's i hate covering that like you wake up and and someone goes oh this earnings report came out or you wake up and so it like i'll read an analyst note that says you know yesterday in a hearing you

Kelly Evans (Anchor) 03:14.790

know this person to this and and and so it's hard for me sometimes to draw a string you're so clever

? (Anchor) 03:20.590

about that 'cause that's kind of the way it happens it drops in a hearing it's discussed by a fed official in a speech and then it's proposed and then there's a sixty day comment period and then they adopt it so between there and there it could be like nine months or a year and

? (Anchor) 03:36.030

i'm not sure when but i've seen some of the actual adoption things move some of the stocks in a way that seems to be what tom is talking about this idea of thinking about banks having to hold somewhat less capital as the year goes by especially by the way interestingly i don't

? (Anchor) 03:51.110

know you went to the regional banks that they're an area that may benefit more than the larger banks

Tom Lee (Head of Research) 03:56.110

yeah regional banks i think are part of the reason we like small caps because as interest rates decline and as business activity picks up and potentially M and a pick up this really plays into the favor of regional banks

? (Anchor) 04:10.950

tom it seems like you're describing a year next year that could have strong growth but also low interest rates are those two things at odds with each other and intention

Tom Lee (Head of Research) 04:20.800

you know i'd say i know when people talk about low rates it depends if they're looking at you know long range short rates or even you know usable rates but i do think next year is a year where parts of the economy that have been suffering from high monetary policy rates may

Tom Lee (Head of Research) 04:37.720

actually do better