A perfect setup for the financial sector?

US financial companies have seen their share prices surge since Donald Trump won the US presidential election. Investors believe the new administration will loosen capital rules, lower corporate tax rates, and boost capital markets activity. But are investors getting overly optimistic? And what's the outlook from here? To explain the outlook for the financial sector, I'm sitting down with my colleagues in Goldman Sachs Research. Richard Ramsden is the business unit leader of the financials group, and Alex Blostein covers the asset management industry. Richard and Alex have just finished hostin

to be here. Great.

Thanks for having us. So

there's obviously been a lot of excitement around financial services firms. What are the key themes you're both tracking as we look toward 2025? Richard, let's start with you.

So I think there's 3 or 4 things that really matter. The first is banks are the most macro of the microsectors. So what happens to the economy is going to play a key role to the performance of these banks heading into next year, both around the performance of net interest income, which is very sensitive to what happens not just to Fed funds, but to the shape of the yield curve, and then what happens to things like unemployment and corporate delinquencies, which is one of the primary drivers to credit quality. So the state of the economy is going to be front and center. We do have a new adminis

with the election of Donald Trump, there's been a lot of focus on tariffs and inflation down the road. Those inflation concerns potentially rising again. What would be the implication for the banking sector if that were to take place? And is some of that already being priced in?

So I think couple of things. The first is you gotta really unpack what tariffs could do both to the short end of the curve, sort of the path of Fed funds rates. And then secondly, what does it do to the shape of the curve? I think at the short end of the curve, the risk is that if tariffs do have a bigger inflationary impact than perhaps the market currently believes, you will just not see as many rate cuts over the course of the next 12 to 18 months. And that would then limit the bank's ability to reprice some of the expensive funding that they have. So so far, you've had 2 rate cuts effectiv

And then you also mentioned potential regulatory shifts. What's really at stake here for banks? Well,

quite a lot. So if you think about the last 4 years, you've seen a lot of regulatory changes. So the capital framework for the banks has got harder to navigate. So capital requirements have gone up, and the framework has become more complex. 2nd, you've had a whole range of initiatives from the CFPB, which is the Consumer Finance Protection Bureau, that has put in place pricing restrictions on things like overdrafts and late fees. Although that legislation hasn't been finalized, the banks have preempted some of those changes in pricing structures. And then the merger environment has also got v