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The financials sector is up 4.18% over the past month and may use the Federal Reserve’s final interest rate cut of the year to carry momentum into 2026.
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Banks and other lenders are likely to see net interest margin gains as a result, which will act as a boon heading into the new year.
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The Vanguard Financials ETF holds a basket of top-rated companies operating in the sector, ideal for investors who want broad exposure.
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Interested in Vanguard Financials ETF? Here are five stocks we like better.
After finishing 2024 with the third-best performance of the S&P 500’s 100 sectors, the financial sector is wrapping up 2025 with strong momentum that could carry into 2026.
Over the past month, the sector has risen 4.18%. And after the Federal Reserve enacted its third and final interest rate cut of the year, the banks, insurance companies, credit services, fintech firms and payment processors who call the financials sector home are well-positioned for a strong start to 2026.
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For investors who are looking to gain broad exposure, the Vanguard Financials ETF (NYSEARCA:VFH) is an all-in-one fund that warrants attention.
Overall, the financials sector has marginally trailed the S&P 500 this year, with gains of nearly 13% and more than 14%, respectively.
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But with a gap of less than two percentage points, financials have proven to be resilient, even as investors poured funds into the tech and communication services sectors, which together are home to the Magnificent Seven, as well as pure-play AI stocks.
But as the market rotation has picked up steam after valuation and AI bubble concerns came to a head in late October, financials has been a cyclical beneficiary.
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On Dec. 17, billionaire hedge fund manager Ronald Baron said on CNBC’s “ETF Edge” that investors should be looking across more market caps and sectors for the best opportunities, and that includes a rotation out of tech and into value, which can be found in the financials sector.
“There are so many companies that are interesting right now with everyone focusing on technology,” Baron said. And after the Federal Reserve cut interest rates at its December Federal Open Market Committee (FOMC) meeting, many of those companies now fall into financials.
That sector will see outsized benefits from increased lending as a result of lower rates and subsequently cheaper borrowing costs. Although steeper cuts can compress net interest margins, higher loan volumes can offset that, improving profitability.
