RBC Capital Markets unveiled its preferred list of U.S. banking stocks for 2026 on December 31, 2025. The firm anticipates the banking sector will gain from ongoing economic expansion, regulatory relief, and increasing loan volumes, supported by a steepening yield curve. This outlook emphasizes growth in commercial lending and mergers and acquisitions as key market catalysts.

Banking Sector Outlook and Key Stock Favorites

With the U.S. economy projected to grow between 2.0% and 2.5% next year, RBC Capital Markets expects banks to benefit from favorable loan growth and a supportive lending environment. The bank anticipates that a steepening yield curve will bolster net interest margins, while heightened M&A activity should enhance operational performance across the sector.

Among RBC’s leading stock selections are Bank of America and Citigroup. Bank of America is highlighted for its strong market position, including co-leading investments in the Texas Stock Exchange and its role in shelving a $20 billion bailout plan for Argentina in favor of a smaller loan package. Citigroup benefits from an upgrade by JPMorgan and regulatory relief with the termination of a 2020 consent order amendment.

Popular Inc. stands out for solid fundamentals, reporting third-quarter 2025 earnings above EPS estimates alongside a $0.75 quarterly dividend. First Horizon Corporation authorized a $1.2 billion stock buyback and declared a quarterly dividend of $0.15, also receiving a Buy rating from Deutsche Bank despite a Neutral downgrade by Baird.

Other favored banks include Fifth Third Bancorp—with third-quarter earnings and revenue beating forecasts—and Huntington Bancshares, which raised price targets and lowered its prime lending rate. Likewise, KeyCorp cut its prime rate to 6.75%, redeemed outstanding senior notes, and gained a price target increase from DA Davidson.

M&T Bank Corp. reported third-quarter 2025 EPS exceeding expectations, declared a $1.50 quarterly dividend, and reduced its prime rate. The PNC Financial Services Group completed its acquisition of FirstBank Holding with regulatory approval and reduced its prime lending rate. Truist Financial Corp. plans a $10 billion share repurchase program, launched a digital wealth platform, yet faced a rating downgrade to Neutral from Baird.

Additional banks highlighted for potential benefit in 2026 include UMB Financial Corporation, U.S. Bancorp, Western Alliance Bancorporation, Wells Fargo & Company, and Wintrust Financial Corporation. These institutions are positioned to capitalize on favorable economic and interest rate conditions.

Monetary Policy and Sector Risks

Despite a positive banking forecast, RBC Capital Markets warns that a resurgence of inflationary pressures could compel the Federal Reserve to tighten monetary policy, potentially hiking interest rates. This scenario risks compressing bank profitability by raising funding costs and restraining loan demand, making inflation a crucial risk to monitor for investors.

The analysis underscores that while steady GDP growth, a steepening yield curve, and rolling back of regulatory constraints create a constructive environment for banks, vigilance on inflation trends and Federal Reserve responses remains essential.

Banking: Market Outlook

RBC Capital Markets expects the U.S. banking sector to perform well in 2026 amid 2.0–2.5% economic growth, robust loan demand, and regulatory easing. Key institutions such as Bank of America, Citigroup, Popular Inc., and First Horizon are primed to benefit alongside other major regional banks. However, potential inflation-driven Federal Reserve rate changes present notable risks. Investors should closely track these dynamics to assess impacts on lending rates, margins, and overall banking sector profitability in the coming year.