Hidden strengths of the U.S. banking system
Amid economic uncertainty, when headlines often focus on capital market risk and volatility, Fidelity’s Pierre Sorel is seeing green in the health of the U.S. financial system.
- Despite rising government debt and fluctuating interest rates, U.S. banks have maintained conservative lending practices and robust underwriting standards since the regional banking crisis in 2023, according to Fidelity Portfolio Manager Pierre Sorel, who thinks this discipline has not only kept loan-related losses in check but also helped pave the way for growth.
- “I believe domestic banks represent a foundation of strength within the financial system right now, thanks to ample capital and high liquidity, which should enable lenders to better weather economic turbulence,” says Sorel, who manages the financials holdings for Fidelity Advisor® Stock Selector Fund and several other portfolios.
- What’s more, he notes, regular stress tests conducted by government regulators continue to confirm the health of the banking system, while the Trump administration’s emphasis on deregulation within the industry may enable banks to contribute to broader U.S. economic growth.
- “Operating under carefully considered looser restrictions, these institutions would have the ability to deploy capital into incremental areas that generate more fees and interest income,” he explains.
- Regional banks could benefit from a shorter regulatory review cycle, which may accelerate merger-and-acquisition approvals, helping to create cost-saving synergies and expansion potential, according to Sorel.
- As an example, he cites Popular, the leading depository bank in Puerto Rico and a non-benchmark fund position as of September 30. The company holds a unique position in a market with limited competition, according to Sorel, who also likes its significant excess capital and potential for accelerated growth.
- Turning to large lenders, Sorel has favored Wells Fargo, a top holding that he believes is on the brink of a transformative moment following years of mismanagement and navigating regulatory hurdles.
- He highlights that the anticipated lifting of the cap on assets imposed by federal regulators could allow Wells Fargo to deploy capital into new growth avenues, helping to unlock fresh revenue streams and strengthening its competitive edge.
- “Banks are not just the backbone of the financial system, they are evolving, adapting and thriving in ways that present compelling investment opportunities,” concludes Sorel.
Fidelity Advisor Stock Selector Fund (FBRNX)
Seeks capital growth.
Related insights
View all
For specific fund information such as standard performance and holdings, please go to the "Funds Managed" link on this page.
Investment decisions should be based on an individual’s own goals, time horizon, and tolerance for risk. Nothing in this content should be considered to be legal or tax advice, and you are encouraged to consult your own lawyer, accountant, or other advisor before making any financial decision. These materials are provided for informational purposes only and should not be used or construed as a recommendation of any security, sector, or investment strategy.
Fidelity does not provide legal or tax advice and the information provided herein is general in nature and should not be considered legal or tax advice. Consult with an attorney or a tax professional regarding your specific legal or tax situation.
Past performance and dividend rates are historical and do not guarantee future results.
Investing involves risk, including risk of loss.
Diversification does not ensure a profit or guarantee against loss.
Sector funds can be more volatile because of their narrow concentration in a specific industry. Growth stocks can perform differently from other types of stocks and the market as a whole and can be more volatile than other types of stocks. Value stocks can perform differently than other types of stocks and can continue to be undervalued by the market for long periods of time. • Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. • Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks, all of which are magnified in emerging markets. • In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation, credit, and default risks for both issuers and counterparties. • Lower-quality bonds can be more volatile and have greater risk of default than higher-quality bonds. • Floating-rate loans may not be fully collateralized and therefore may decline significantly in value. • The municipal market is volatile and can be significantly affected by adverse tax, legislative, or political changes, and the financial condition of the issuers of municipal securities. • The securities of smaller, less well-known companies can be more volatile than those of larger companies. • The funds can invest in securities that may have a leveraging effect (such as derivatives and forward-settling securities) that may increase market exposure, magnify investment risks, and cause losses to be realized more quickly. • Leverage can magnify the impact of adverse issuer, political, regulatory, market, or economic developments on a company. In the event of bankruptcy, a company’s creditors take precedence over the company’s stockholders. Although the companies that the fund invests in may be highly leveraged, the fund itself does not use leverage as an investment strategy. Changes in real estate values or economic downturns can have a significant negative effect on issuers in the real estate industry. In the event of bankruptcy, a company’s creditors take precedence over the company’s stockholders. Third-party marks are the property of their respective owners; all other marks are the property of FMR LLC.