Markets Update August 2025 – Why bank stocks have further upside potential

The capital market environment remains positive – the risk of imminent sustained price corrections appears low. The latest reporting season has once again shown that companies are more robust than many assume: despite challenges such as rising tariffs, they have achieved strong overall earnings growth and presented stable outlooks. No major disruptive factors are expected on the economic front either. Although the global economy is in a late cyclical phase, with only a few regions experiencing dynamic growth, there are currently no signs of a significant slump in growth or even a global recession.

In addition, investments in artificial intelligence (AI) are increasingly becoming a relevant economic driver. According to estimates by Morgan Stanley Research, around US$3 trillion will be invested in the expansion of data centers worldwide by 2028. A significant portion of this sum will come from large, financially strong US technology companies. The forecast does not even take into account necessary investments in energy production and power grids – total direct and indirect AI infrastructure investments are therefore likely to be significantly higher. They have the potential to noticeably extend the economic cycle and provide a solid fundamental basis for the stock market upturn in the longer term, despite rising valuation risks.

Monetary policy increasingly supporting financial markets

Monetary policy is also increasingly supporting financial markets in many places. Although key interest rates remain restrictive in many regions, more and more central banks are already in a cycle of interest rate cuts. At the central bankers' meeting in Jackson Hole last Friday, Jerome Powell, head of the globally influential US Federal Reserve (Fed), also opened the door to a key interest rate cut: Despite the continuing risk of inflation, the US monetary authorities are likely to cut their key interest rate in September, thereby further easing monetary policy conditions. This is supported by the recent outperformance of bank stocks: interest rate cuts usually lead to short-term interest rates falling more sharply than long-term interest rates, causing the yield curve to steepen. For banks, this means higher margins, as they can refinance more cheaply in the short term and lend capital at higher interest rates in the long term. As the global interest rate cut cycle is still in its early stages, the performance potential of bank stocks is far from exhausted.