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Will the Fed Cut or Pause? These Finance Stocks Can Win Either Way
By Chris Markoch. Published: 12/31/2025.
Quick Look
- Three financial stocks are positioned to benefit whether the Fed pauses or cuts interest rates in 2026.
- BAC, SCHW, and PRU offer different revenue drivers—from lending to fees to insurance—to navigate shifting monetary policy.
- These stocks show improving trends in earnings, price momentum, and income potential, making them attractive options for long-term investors.
Will they or won't they? Stocks rose in the final quarter of 2025 as the Federal Reserve began cutting interest rates. But investors still wonder what's next: whether the Fed will cut further or pause — Fed officials remain divided.
There are several arguments in favor of cutting. Looser monetary policy is generally bullish for stocks for a variety of reasons, including lower borrowing costs for businesses. That could also spur hiring and help reverse the current trend.
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There's also the matter of the national debt. The U.S. Treasury must refinance more than $10 trillion of debt over the next 12 months and would prefer to do so at lower rates.
On the other hand, inflation remains a concern: although it is slowing, it is still above the Fed's 2% target.
So far, two rate cuts haven't produced an inflation spike, but it's too early to declare the all clear. Several stimulative provisions from the One Big Beautiful Bill are scheduled to take effect in 2026, and as investors saw in 2020, when consumers have more money to spend, they generally spend.
Answers will begin to emerge at the Federal Reserve's first meeting in January. Meanwhile, investors should consider stocks that can perform whether the Fed cuts or pauses. Finance stocks are one area to watch. Here are three candidates.
Built to Monetize Either Side of the Rate Cycle
Bank of America (NYSE: BAC) offers a scaled, diversified banking platform built to monetize both sides of the rate cycle. Management has already shown it can control deposit costs without materially destabilizing the franchise — important if policy rates drift lower more slowly than the market has anticipated.
The bank's technology and AI investments are designed to expand operating leverage over time. That means modest top-line growth can still translate into attractive earnings and capital returns, supporting a long-term buy-and-hold case.
BAC is up about 25% in 2025. The chart shows higher highs and higher lows, with support above its 100-day simple moving average (SMA). Analysts' consensus price target implies roughly 8% upside, supported by expectations for about 17% earnings growth over the next 12 months.
A Fee-Driven Model Over Traditional Lending
Charles Schwab Corp. (NYSE: SCHW) offers a different way to play strong U.S. households and markets. Unlike big banks, Schwab is less reliant on risky loans and generates most of its revenue from interest on client cash, trading fees, and advisory services.
This asset-light business model is easier to grow across different economic conditions. As interest rates normalize and customer activity recovers, Schwab's profits could become steadier. With more assets under management and expanding fee income, Charles Schwab may appeal to investors seeking a financial company built on fee revenue rather than heavy lending.
SCHW is up about 35% in 2025, despite a steep pullback following the company's third-quarter earnings (which beat on both the top and bottom lines). The stock recovered from that dip and reached an all-time high, then cooled a bit after getting overbought. Still, analysts remain bullish, supported by expected earnings growth near 23%.
Defensive Income With Long-Term Growth Tailwinds
Prudential Financial Inc. (NYSE: PRU) gives investors exposure to insurance and retirement services — areas that can benefit when long-term interest rates are higher, the population is aging, and demand for guaranteed-income products grows.
Prudential often sees increased demand when markets feel uncertain because customers seek stability. It also manages a large investment portfolio that can earn higher yields today than it could in the 2010s. This mix of steady income, protection in turbulent times, and growth from long-term savings differentiates Prudential from banks or brokerage firms.
PRU is down about 3.9% for the year but has rallied into year-end — up roughly 9.8% over the recent period — and formed a golden cross in mid-December. Investors will want to watch whether the stock holds above its 50-day SMA.
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