RBC’s 2026 Bank Watchlist: Bank of America and Goldman Sachs Poised to Win in Earnings-Driven Markets

The institutional view on the U.S. banking sector in 2026 is one of structural tailwinds. RBC Capital Markets sees the sector as a core beneficiary of a market environment where leadership is expected to shift from pure narrative-driven rallies to tangible earnings growth. The firm projects the S&P 500 will rise to 7,750 in 2026, implying a gain of another 12% or so, with the bull market relying more on financial results and less on valuation expansion. This sets the stage for banks, whose profitability is directly tied to economic activity and interest rate dynamics.

RBC's bullish thesis rests on three converging strengths. First, a projected economic growth between 2.0-2.5% provides a stable backdrop. Second, a steepening yield curve directly improves net interest margins, the core profit engine for most banks. Third, accelerating loan growth across Commercial & Industrial, Commercial Real Estate, and home equity lines, fueled by elevated M&A activity, signals robust demand for credit. Together, these factors create a favorable setup for earnings power.

Against this backdrop, RBC identifies specific banks to watch. The firm's key recommendations are Bank of America and Goldman Sachs. Both are highlighted for their ability to capitalize on the projected favorable environment, though the watchlist includes a broader group of institutions positioned for potential outperformance. The sector's appeal is not just cyclical; it represents a quality factor with tangible catalysts, making it a compelling candidate for portfolio allocation as the market transitions to a more earnings-driven phase.

Bank-Specific Rationale: Positioning for 2026

RBC's watchlist is not a random selection; it reflects a deliberate preference for institutions with structural advantages in the 2026 setup. The firm's top picks, Bank of America and Goldman Sachs, are highlighted for their leadership in a nascent but critical infrastructure play: the Texas Stock Exchange. Both banks are leading a group of investors in the Texas Stock Exchange, a move that positions them at the forefront of next-generation trading technology. This is a strategic bet on the future of market structure, offering potential long-term revenue diversification beyond traditional banking.

This focus on infrastructure leadership connects directly to the watchlist's broader implicit thesis: favoring banks with diversified revenue streams to mitigate volatility. The benchmark for this approach is RBC's own capital markets business, which Scotia Capital analysts note is less volatile than that of other banks. The rationale is clear: a more balanced earnings mix, combining stable banking franchises with a scaled, less cyclical capital markets engine, provides a smoother profit trajectory. For institutional investors, this represents a quality factor with a lower risk premium.

Bank of America's involvement in the Texas Stock Exchange underscores its ambition to capture value from the evolving trading ecosystem. For Goldman Sachs, the same role suggests a similar strategic positioning, leveraging its deep roots in capital markets to gain a foothold in new technology. Both moves signal a forward-looking capital allocation that goes beyond today's loan growth and net interest margin tailwinds. In a sector where performance is often tied to interest rates and credit cycles, this infrastructure bet offers a potential path to outperformance through technological moats and fee-based income, aligning with the watchlist's conviction in banks that are building durable competitive advantages.

Capital Allocation: Loan Growth vs. Capital Markets Volatility

The profitability story for U.S. banks in 2026 is bifurcated. On one side lies a powerful, structural tailwind: accelerating loan growth. On the other, a cyclical risk that demands careful navigation: the volatility of capital markets. RBC's watchlist banks are positioned to capitalize on the former while mitigating exposure to the latter.

The primary engine for earnings is clear. RBC highlights accelerating loan growth in Commercial & Industrial, Commercial Real Estate, and home equity lending, fueled by elevated M&A activity. This represents a tangible, fee-generating expansion of the balance sheet that is directly tied to the projected economic growth between 2.0-2.5%. For banks with diversified portfolios, this provides a stable, interest-rate-sensitive profit stream that is less susceptible to the swings of market sentiment.

Contrast this with the capital markets segment. While it has delivered explosive growth, that momentum is likely peaking. Trading revenue across large banks has jumped 44 per cent over the past two years, a surge reminiscent of pandemic-era highs. Yet, analysts see this cycle as having reached a turning point. Consensus now expects only a modest seven per cent gain in 2026 for capital markets earnings, with results likely to be "relatively flat" in fiscal 2027. This creates a clear dichotomy: a sector poised for loan-driven expansion while its most volatile profit center faces a slowdown.

RBC's watchlist banks are structured to navigate this tension. Goldman Sachs, a top pick, is inherently built for capital markets resilience. Its deep expertise and scale allow it to capture fees across cycles, providing a counterbalance to loan growth. Bank of America, meanwhile, exemplifies the diversified franchise. Its leadership in the Texas Stock Exchange signals a strategic bet on future infrastructure, while its massive, diversified loan portfolio ensures it is not reliant on any single revenue stream. This blend of capital markets strength and broad-based lending offers a more stable earnings trajectory.

For institutional investors, the allocation takeaway is about risk-adjusted returns. The watchlist favors banks that can leverage the durable loan growth tailwind while possessing the scale and diversification to weather the expected capital markets slowdown. It is a preference for quality and balance over pure cyclical exposure.

Portfolio Construction: Valuation and Risk-Adjusted Assessment

The favorable structural backdrop for U.S. banks supports a sector overweight in institutional portfolios. The combination of projected economic growth, a steepening yield curve, and accelerating loan demand provides a durable foundation for earnings power. This setup aligns with a market transition where returns are expected to be driven more by tangible financial results than by valuation expansion, a shift that benefits the banking sector's core profit engine.

However, this conviction is tempered by three key risks that could challenge the outlook. First, re-emerging inflation could force a policy shift from the Federal Reserve, potentially leading to higher interest rates that would disrupt the sector's favorable trajectory. Second, the intensifying focus on earnings growth for the broader market may pressure the Magnificent 7 if their growth stories falter, which could redirect capital flows and volatility. Third, geopolitical risks like the ongoing Middle East conflict pose a direct threat to energy-related lending and insurance segments, creating potential credit and operational headwinds.

Against these risks, RBC's watchlist offers a clear path for quality-focused allocation. The emphasis is not on chasing momentum but on selecting banks with structural advantages. The watchlist's focus on institutions like Bank of America and Goldman Sachs, which are positioned at the nexus of traditional banking strength and next-generation infrastructure plays, represents a preference for quality factors over cyclical bets. This approach aims to capture the sector's earnings tailwinds while mitigating exposure to the volatility of capital markets and the idiosyncratic risks of a single business line. For portfolio construction, this means overweighting banks with diversified revenue streams, robust capital positions, and strategic bets on the future of finance.

Catalysts and Risks: What to Watch in 2026

The institutional thesis for U.S. banks in 2026 hinges on a few forward-looking events that will confirm or challenge the projected earnings tailwinds. The primary catalyst is the trajectory of inflation and the Federal Reserve's monetary policy response. RBC's analysis warns that re-emerging inflation could prompt the Federal Reserve to shift monetary policy, potentially leading to higher interest rates that could impact the sector. A hawkish pivot would disrupt the steepening yield curve that is central to the net interest margin story, directly threatening the core profit engine.

Beyond policy, investors must monitor the sustainability of the loan growth trends that are accelerating across Commercial & Industrial, Commercial Real Estate, and home equity lines. This expansion is fueled by elevated M&A activity, and its durability will be a key indicator of underlying economic health. Any deceleration in these lending segments would signal a weakening credit cycle, challenging the sector's earnings foundation. At the same time, the watchlist banks must navigate the expected slowdown in capital markets. Trading revenue across large banks has jumped 44 per cent over the past two years, a surge that analysts believe may be peaking. The consensus now expects only a modest seven per cent gain in 2026 for capital markets earnings, with results likely to be "relatively flat" in fiscal 2027. For the watchlist banks, the pace and depth of this deceleration will test their diversification strategies and overall earnings resilience.

Finally, the strategic positioning of the watchlist banks requires validation. Their leadership in the Texas Stock Exchange is a forward-looking bet on next-generation trading infrastructure. The progress of this initiative will serve as a tangible signal of their ability to capture value from evolving market structure. Similarly, any regulatory developments that ease burdens or create new opportunities for the favored banks will provide additional validation of their strategic setup. In sum, the path for 2026 is clear: watch inflation and Fed policy, track loan growth sustainability, monitor capital markets deceleration, and assess the execution of strategic bets. These are the events that will determine whether the sector thesis holds or faces a material challenge.