Expectations Of Rising Rates And Worries About Ai Have Investors Piling Into Big Bank Stocks

Key Takeaways

• Bank stocks in the U.S., as well Canada, Japan and other countries around the world have surged in recent months.
• Expectations of rising interest rates in many of the world’s largest developed economies have helped fuel the rise, along with worries about an AI bubble.

Investors are taking their money to the banks. 

The Invesco KBW Bank ETF (KBWB), which was up about 1% in Wednesday afternoon trading, hit a series of record highs in August as investors piled into big bank stocks. The ETF is up about 14% year-to-date, slightly outpacing the S&P 500’s 12% gain. 

In neighboring Canada, bank stocks have been performing even better. The S&P/TSX Composite bank sector index has added roughly a quarter of its value in 2026, while the broader Canadian index has climbed about 14%. 

The recent performance of bank stocks in Japan, as well as markets in Europe, paint a similar picture, as expectations of rising rates in many of the world’s largest economies, along with worries about AI, have many investors around the world reaching for bank shares. 

Rising Rates Tend to Boost Bank Profits

Expectations of rising rates in the U.S., Canada and elsewhere to control inflation in the face of a global energy shock have played a major role in fueling investors’ recent support for banks. When rates rise, banks stand to boost profits as the spread between what they are able to earn on assets and pay on deposits widens. 

If rates rise so much that consumers and businesses pull back borrowing and the economy contracts, however, that could dent the outlook for banks. Resilient consumer spending in the U.S. and other economies around the world has so far staved off the worst of those worries.    

So Do Higher Trading Volumes 

Strong trading volumes have also helped, in the face of heightened volatility. In the U.S., JPMorgan (JPM), Goldman Sachs (GS) and Bank of America (BAC)—which each saw trading revenues surge at least 70% from a year ago—crushed Wall Street analysts’ estimates when they reported quarterly earnings in July, as did other big American banks. 

Big Canadian banks, including Royal Bank of Canada (RBC) and Toronto-Dominion Bank (TD), also beat estimates across the board when they reported earnings last month, in large part as trading and deals surged. 

Deal Activity and AI Financing 

Momentum in the IPO market in the U.S. and globally, as well as a surge in M&A activity across several regions has also been a boon for banks, as it can boost underwriting and advisory fees. Banks have also benefited from tech giants turning to banks to help finance their AI data center infrastructure buildout.

Analysts at Wells Fargo told clients in a recent note that they see a continuing “trickle-down effect” for banks from AI investments, along with strong capital spending trends not tied to AI activity. “AI capex is broadening into the industries that supply, power and finance it, setting up the best commercial lending backdrop in over a decade,” they wrote. 

An Alternative to the AI Trade

Investors seeking lower-risk alternatives to the AI trade may also be helping fuel the banking sector’s rise, analysts at Goldman Sachs and other firms have suggested. In the case of an AI fallout, banks would still likely see strong performance and could outperform broader markets as they did in the aftermath of the dot-com bubble, chief economic adviser at Capital Economics John Higgins suggested in a July note. 

Banks are in a “sweet spot,” according to Wells Fargo. “The biggest risk is interest rates remaining materially higher than expected, which could limit borrowing demand.”