Financials: More Resilient Than Feared

Financials should remain resilient because higher nominal growth, higher interest rates, private-market expansion, and self-directed investing support selected business models while AI pressure weakens some information-service and fintech moats.

• Deglobalization, U.S. onshoring, AI-related data-center capital expenditure, and persistent fiscal deficits are expected to sustain a higher-growth, higher-rate environment for at least the next couple of years.
• Regional banks and commercial real estate brokers may benefit from stronger economic growth and structural protections tied to balance sheets, regulation, and physical assets, although TimesSquare remains selective and avoids banks with excessive customer or industry concentration.
• Alternative asset managers face slower realizations, private-credit redemption concerns, and pressure on some software-related holdings, yet diversified funds largely avoided fire sales and credit availability has not broadly deteriorated.
• The number of U.S. public companies fell from 8,090 to 3,908, while flagship private-market funds from successful managers are reported to be 15% to 20% or more larger than their predecessors, supporting fee-paying AUM and margin growth.
• Only 56% of adults participated directly or indirectly in the stock market according to the Fed's 2025 Survey of Consumer Finances, leaving room for self-directed platforms as younger investors receive wealth and adopt digital tools; TimesSquare remains cautious on stablecoins and perpetual futures while viewing prediction markets more favorably.

Takeaway: Investors should favor selective regional banks, CRE brokers, balance-sheet-light alternative managers, and self-directed platforms, while monitoring rate pressure, private-market inflows, regulatory risk, and the durability of AI-related disruption concerns.