The AI stocks no one's talking about (but institutions are quietly buying) (From TradingTips)
In Brief
- Analysts now expect the Federal Reserve to make only one interest rate cut in 2026, signaling a higher-for-longer environment.
- Financial stocks outside traditional banking—such as market infrastructure and insurance firms—stand to benefit.
- These companies can convert elevated rates into earnings growth without depending on net interest margins.
The early days of 2026 feel a lot like 2025 as they relate to the debate over lower interest rates. While there are many bullish opinions, as of Jan. 6, the CME FedWatch tool puts the odds of a pause at the Fed’s January meeting at 84%. Many analysts now believe the Federal Reserve will make only one rate cut in 2026.
It’s fair to say that investors haven’t priced “higher-for-longer" rates into their initial 2026 stock market projections. But if the Federal Reserve pauses in January, investors will have to consider what that could mean for stocks in the first quarter and, perhaps, throughout the year.
For many investors, higher rates bring to mind fixed income investments like money market funds or Treasury yields. These may still be worthwhile investments for cautious income-seeking investors. However, they can create opportunities for equity investors. That means looking at finance stocks dealing with market infrastructure as well as insurance companies.
These companies provide the financial plumbing behind the scenes and can turn higher interest rates into earnings leverage. Here are three names to consider.
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CME Group: Profiting From Cash and Volatility
Speaking of the FedWatch tool, the first name to look at is the CME Group Inc. (NASDAQ: CME). The company operates some of the world’s largest and most liquid derivatives exchanges, including the Chicago Mercantile Exchange (CME), the Chicago Board of Trade (CBOT), the New York Mercantile Exchange (NYMEX) and COMEX.
Trading volume provides most of CME Group’s revenue. However, the company also generates significant interest income on customer margin balances.
Here’s how that works. Traders will post money on margin to hold futures and options. When interest rates were near zero, those balances generated minimal income. However, that dynamic has changed as interest rates have climbed to more normal levels. This cash goes directly to the company’s bottom line with virtually no incremental cost.
At the same time, elevated rates tend to increase hedging activity and market volatility, especially in interest rate futures, Treasury contracts, and equity index derivatives.
CME stock has a consensus Hold rating, which may reflect a price-to-earnings (P/E) ratio around 26x that puts the stock at a slight premium to its historic average and the broader market. However, analysts have been raising their price targets in step with the expectations for a Fed pause.
Intercontinental Exchange: Exchanges Plus Rate-Sensitive Tech
Intercontinental Exchange Inc. (NYSE: ICE) is another global operator of exchanges, clearing houses and data services. ICE benefits from interest earned on clearing collateral, which becomes far more material when short-term yields stay higher for longer.
The business model is similar to that of the CME Group. However, Intercontinental Exchange is more structured around international benchmarks and cross-border markets. The company also has growing exposure to mortgage technology and fixed-income data markets.
Higher rates have reshaped the housing and refinancing market, pushing lenders to rely more heavily on analytics, automation, and digital workflows to manage volume volatility and tighter margins. ICE’s Encompass platform and fixed-income data businesses monetize this shift.
ICE stock was up about 13% in 2025, making it a slight laggard. However, analysts give the stock a consensus Buy rating, with a potential upside of around 17%. Even with a P/E ratio around 30x, the stock is trading at a discount to its historic average.
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American International Group: Insurance Meets Higher Yields
American International Group Inc. (NYSE: AIG) gives investors a different way to invest in quiet winners from higher-for-longer interest rates. Specifically, insurers like AIG collect premiums upfront and invest those funds, primarily in fixed-income securities, often for years on end.
That was bearish in the ultra-low-interest-rate environment that was in place from 2008 through 2021. But the rising yields of the last few years have improved American International Group’s reinvestment rates, providing stronger net investment income to boost earnings and provide the firm with greater underwriting flexibility.
Unlike banks, insurers don’t face deposit flight risk in a high-rate environment. Their liabilities are longer dated, allowing them to lock in attractive yields for extended periods. That creates a durable earnings tailwind if rates stay elevated through multiple reinvestment cycles.
AIG stock looks fairly valued at around 15x earnings. However, analysts are forecasting earnings growth of over 22% in 2026. That may not be priced into the stock, which is approaching its 52-week (and all-time) high.
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