One of the most profitable times to invest is when there are promising developments looming for a company or industry, yet stock prices are temporarily trading at a discount.
I would argue that financial sector stocks — some of them, at least — can be characterized that way at the moment.
Here’s why.
Late on Jan. 9, President Donald Trump called for a one-year, 10% cap on credit card interest rates. He said the cap would become effective on Jan. 20, the one-year anniversary of his second inauguration.
“Please be informed that we will no longer let the American Public be ‘ripped off’ by Credit Card Companies that are charging Interest Rates of 20 to 30%, and even more,” Trump wrote on X.
As you might expect, stocks of major card issuers tanked. Here are the five top credit card issuers by purchase volume, along with their performance during the week after the announcement.
Bank of America(NYSE: BAC), down 4.5%
JPMorgan Chase(NYSE: JPM), down 6.6%
American Express(NYSE: AXP), down 6.8%
Capital One Financial(NYSE: COF), down 9.9%
Citigroup(NYSE: C), down 4.8%
In addition, the two major credit card payment networks also took a major hit due to the Trump proposal. Visa(NYSE: V) fell 8% while Mastercard(NYSE: MA) declined 6.9%.
All of these financial stocks have moved in the opposite direction of the market — the S&P 500 pushed higher Monday before retreating a bit on Tuesday of this week.
Keep in mind that a cap on card rates is not a new idea. Early last year Sen. Bernie Sanders of Vermont, a socialist who votes with Democrats, co-sponsored a bill capping rates at 10% (populism comes from all directions these days).
But such a cap would almost certainly have to get through Congress, and right now it is unlikely to be enacted, many Congress watchers say. The powerful financial industry has already vowed to fight the proposal with every weapon at its disposal. And in fact the Sanders bill stalled in congress last year while the financial industry killed a similar effort by the Consumer Financial Protection Bureau to cap late fees on credit card rates.
“We expect that the banking industry will pop this trial balloon before it takes off,” economic and stock market analyst Ed Yardeni wrote in an email to subscribers this week.
So the recent dip in financial stocks could be temporary, lasting only until it becomes clear to investors that an actual cap on credit card rates is unlikely to be implemented anytime soon.
Meanwhile, the financial industry may be poised for a very good 2026 due to the ongoing monetary easing cycle underway at the Federal Reserve.
Image source: Getty Images.
The Fed cut its benchmark interest rate three times in 2025. Futures traders expect at least two more rate cuts this year. And when Fed Chair Jerome Powell’s term ends in May, Trump is very likely to appoint a new Fed chief who pushes for even steeper and more rapid rate cuts.
When the Fed cuts rates it pushes short-term rates down more quickly than long-term rates, which leads to a steeper yield curve. Simply compare the falling short-term federal funds rate to the 10-year Treasury yield (the longer end of the curve), and you see that the difference between the two rates is widening.
And remember, the yield curve is critical to banks’ profitability. They borrow money from depositors at lower short-term rates and then lend it to consumers and businesses at higher long-term rates. So when the yield curve steepens — i.e., short-term rates fall and longer-term rates remain higher — bank profits rise.
The bottom line here is that the immediate threat to bank profits — a cap on credit card rates — is pretty unlikely to go anywhere anytime soon. At the same time, the interest rate landscape is shaping up for a more profitable 2026 for banks and card issuers. And share prices follow profits.
That makes right now a great entry point for investing in financial stocks.
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Citigroup is an advertising partner of Motley Fool Money. Bank of America is an advertising partner of Motley Fool Money. JPMorgan Chase is an advertising partner of Motley Fool Money. American Express is an advertising partner of Motley Fool Money. Matthew Benjamin has positions in Visa. The Motley Fool has positions in and recommends JPMorgan Chase, Mastercard, and Visa. The Motley Fool recommends Capital One Financial. The Motley Fool has a disclosure policy.
