Key Points
- Fed Chair Kevin Warsh's Aug. 28 Jackson Hole speech kept a September rate hike in play, adding uncertainty ahead of the FOMC's biggest 2026 meeting.
- Charles Schwab and Cullen/Frost Bankers both posted strong quarterly results and stand to benefit from elevated or rising short-term interest rates through 2026 and 2027.
- Jackson Financial's annuity business depends on long-term bond yields rather than Fed overnight rate moves, giving it potentially more reliable margins than the banks.
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New Federal Reserve Chair Kevin Warsh delivered his first Jackson Hole speech on Aug. 28, and it came at a time when the interest rate path was already highly uncertain. Nine of the 18 voting Fed officials have at least one 2026 hike penciled into their projections, and Warsh’s remarks kept a September move firmly in play without explicitly calling for one. repriced the odds of a Sept. 16 Federal Open Market Committee (FOMC) hike higher after the speech, underscoring how quickly rate expectations can shift. Couple this with the Treasury’s intervention into the bond market in an attempt to suppress rates, and you’ve got a recipe for more uncertainty ahead of the biggest Fed meeting of 2026.
It’s easy to say banks make money when rates are high, but there are different mechanisms at work throughout the financial sector. And when the rate path creates uncertainty, investors need several plans to adapt to ever-changing environments. The three selected stocks represent three different ways to play interest-rate uncertainty. Each occupies a niche in the finance industry and may outperform if certain market conditions materialize (or fail to materialize).
Charles Schwab: Turning Idle Cash Into Interest Revenue
One of the more lucrative investment bank revenue streams comes from idle customer cash. Whether it's from settlement cash, dividends not yet reinvested, or simply cash sitting on the sidelines between trades, this idle money can be deployed into short-term government bonds that earn profit for the firm. There’s no counterparty, and only a fraction of the proceeds are typically returned to the client.
The Charles Schwab Corp. (NYSE: SCHW) is one of the best in the business at this, and we can find plenty of examples in its most recent conference call. On July 21, Schwab reported record Q2 revenue of $7.07 billion, easily surpassing estimates and representing year-over-year (YOY) growth of more than 20%. Net interest revenue was up 19% in the period as trading activity soared, and interest-earning asset margins grew from 2.66% to 3.00%. Lending was another growth driver; margin loan balances jumped 30% quarter over quarter to $165.1 billion in Q2, and bank loans grew 33% YOY to $67 billion.
Slow and steady wins the race for SCHW investors. If the Fed hikes in September or simply keeps short-term rates elevated into 2027, Schwab will have a predictable, durable income stream to draw on. However, the setup has limits. If the Fed cuts, this income would come under pressure. And if the Fed raises significantly and spurs a market drawdown, it would cut into Schwab’s fee income and limit the upside of margin loan growth.
Cullen/Frost Bankers: Old Cheap Loans Rolling New Profitable Ones
The COVID-era market wasn’t a fun one for the banking industry. Interest rates were near zero, and banks made loans and bought bonds with very low yields. But now many of those loans are maturing, and banks can replace the dollars rolling off their books at higher-yielding rates. Management at Cullen/Frost Bankers Inc. (NYSE: CFR) spelled this out in July during their quarterly conference call.
In Q2 2026, Cullen/Frost surprised to the upside with healthy earnings per share (EPS) growth despite a close miss on revenue. The bank also raised guidance on several metrics, including average loan growth to 7-8% and net interest income growth to 4.75-5.25%. CFO Dan Geddes said the company expects more than $500 million in fixed-rate loans to be repriced in the second half of 2026, providing runway for margin growth into 2027.
The Fed doesn’t need to move at all in 2026 for Cullen/Frost to grow its bottom line, although management did go against consensus in predicting a 25 basis point hike at the September meeting, a view that now looks less out of step after Warsh’s speech. A fast cutting cycle would be the most detrimental environment for Cullen/Frost. But if the Fed stays higher for longer, the bank can continue repricing loans into higher rates.
Jackson Financial: The Biggest Beneficiary of Higher for Longer, But Not Due to Fed Action
Annuity providers take in money today with the promise to repay it later (often decades later) at a fixed rate. During the life of the annuity, the provider invests the proceeds in a range of bonds, and the duration allows it to buy 10-, 20-, and 30-year assets. Companies like Jackson Financial Inc. (NYSE: JXN) can collect the difference between the fixed-rate annuity and the long-term bond yield and compound it over decades.
Jackson Financial reported its Q2 2026 results on Aug. 3, posting EPS and revenue figures over consensus. Retail annuity sales also grew 34% YOY, and spread-based products now account for 54% of total sales. Management reaffirmed its fiscal 2026 capital return targets, and unlike the other two banks, this process doesn’t depend as directly on Fed action or inaction. Long-term rates are currently elevated due to government borrowing and inflation risk, so Jackson Financial is largely indifferent to the Fed’s overnight rate. A single hike, cut, or hold decision is unlikely by itself to move yields on the 20-year and 30-year Treasury, so JXN may have the most reliable margins of the pack.
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