As markets stabilize and confidence returns, the outlook for investment banks is looking quite bright. Capital market activity is rebounding, with underwriting pipelines reopening and advisory fees beginning to grow again as dealmaking shows signs of life.
A pickup in dealmaking would be a strong tailwind for larger investment banks that weathered the slow capital markets over the past few years. Favorable macroeconomic conditions are making it more attractive for companies to go public through initial public offerings (IPOs).
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Meanwhile, as interest rates moderate, companies are showing greater appetite for mergers and acquisitions. Not only that, but regulatory uncertainty has waned, paving the way for more dealmaking, which should benefit investment banks JPMorgan Chase (JPM 1.95%), Goldman Sachs (GS 4.73%), and Morgan Stanley (MS 4.74%).
Here's what investors need to know as we head into 2026.
Investment banking has been a roller coaster during the past five years
Investment banking is a highly cyclical business that tends to experience periods of boom and bust. That's because economic conditions, including interest rates, inflation, and stock market behavior, all influence dealmaking activity.
In recent years, rising interest rates and one of the fastest rate-hiking cycles in decades have weighed on the industry, prompting market participants to wait for the dust to settle. High interest rates not only increased financing costs for completing deals, but also weighed on stock market valuations, effectively closing the window for IPOs after a surge in 2020 and 2021, with the impact most pronounced on investment banking heavyweights like Goldman Sachs.
NYSE: GS
Key Data Points
Conditions began to stabilize last year and continued to improve this year. Inflation and interest rates have stabilized following their rapid rise. Companies are cautiously returning to the market, with large companies leading the way.
Dealmaking activity is picking up
The volume of mergers and acquisitions (M&A) has increased by about 8%, according to the professional services firm EY. However, the total deal value has surged 146% year over year, indicating that major deals in particular are experiencing a sharp increase.
EY expects activity here to pick up due to divestitures and artificial intelligence-driven investments fueling this momentum. The firm expects a continued rebound into next year, driven by improving financial conditions, stronger corporate balance sheets, and rising corporate confidence.
IPO activity is also picking up as companies grow more confident about going public in today's stock market. This year's IPOs have seen a surge in volume and proceeds, with the number of deals and the total proceeds through Sept. 30 matching full-year totals for 2024. According to EY, the third quarter saw 65 IPOs raise $15.7 billion, up from the $8.6 billion raised by 40 IPOs in the same quarter last year.
Some of this year's top IPOs were Figma, CoreWeave, Circle Internet Group, and Chime Financial. With backlogs high and some huge IPOs coming down the pike next year, it could be a strong year of growth. One of the most anticipated IPOs could be SpaceX, which is taking steps to go public and could be valued at more than $1.5 trillion.
NYSE: JPM
Key Data Points
These three banks stand to benefit
With dealmaking slated to pick up next year, banks with strong investment banking divisions stand to benefit the most. JPMorgan Chase is already the largest bank in the U.S. and consistently ranks among the top investment banks in total fee revenue. It also has substantial capital, which gives it an advantage to take the lead on large, complex financings for M&A and leveraged buyouts.
Goldman Sachs is a pure-play investment bank, ranked among the top in M&A advisory and consistently No. 1 globally in M&A deal value. This year, it has seen a surge in megadeals, driven by its position and brand. Meanwhile, Morgan Stanley has a strong track record in public offerings and is a go-to firm for tech and healthcare IPOs, and has performed well this year as these sectors lead the recovery.
After several years of stagnation, dealmaking is making a comeback, and investment banks could see a significant boost as a result.
