Q4 Bank Earnings Preview: Do Results Back Rally?

The largest U.S. banks quietly enjoyed an impressive fourth-quarter market performance, with S&P financials leading all sectors in performance during the final month of 2025. Now investors will find out if stock market gains reflected solid fundamentals—including the possible incorporation of AI into businesses—as major Wall Street financial institutions share quarterly earnings starting later this week.

"The financials sector may end up being a winner of the AI trade in 2026 and beyond as these new technological breakthroughs potentially create significant efficiencies and cost-savings for these banks going forward," said Alex Coffey, senior trading and derivatives strategist at Schwab. "One of the things I will be looking for is whether or not we start to hear how exactly these different companies are benefiting from these technologies already and what their expectations are going forward."

Checking the charts, investors apparently expect happy tidings from companies like JPMorgan Chase (JPM), Citigroup (C), Bank of America (BAC), Morgan Stanley (MS), and others. The Nasdaq Bank Index (BANK) climbed nearly 5% in the fourth quarter through December 29, 2025, improving on its 3% third-quarter gain and easily outpacing the S&P 500 index's 3.5% quarterly rise.

The mid-single digit BANK's gain masks much stronger performances from the largest investment banks. Goldman Sachs (GS) rose 18% between the end of the third quarter and late December while Morgan Stanley powered its way to 14% gains. Bank of America rose a more pedestrian 9% while JPMorgan Chase—the biggest of the banks—settled for a 4% rise.

Year over year, financials sector stocks rose 13% through early January, below the 16% S&P 500 gains and the financials sector's better-than-20% gains in 2024, but good enough to be in the top five sectors last year.

Investors piled into large bank stocks for reasons that go beyond the industry's fundamental picture. Some gains reflect rotation out of info tech and into cyclical sectors like financials that tend to do better when the economy fares well.

Big bank earnings season begins tomorrow with JPMorgan Chase reporting first thing before Wall Street's open. Bank of America, Wells Fargo (WFC), and Citigroup are due Wednesday before the open, followed by Morgan Stanley and Goldman Sachs Thursday morning. Several smaller regional banks also report this week, including BlackRock (BLK).

For many banks, trading revenues and net interest income (NII) remain the core drivers of earnings results, making them key areas for investors to watch this earnings season. NII measures the money banks make lending minus what they pay to customers.

Banks typically borrow at short-term rates and lend at long-term rates, so when the gap between those two rates widens—often called yield curve steepening—it tends to boost NII. That's what happened in recent years, providing a strong tailwind for banks' earnings.

Some expect this to continue in the first quarter and throughout 2026. Bank of America, for example, forecasted a 7% year-over-year jump in its NII this earnings season.

However, there are signs this trend could be slowing. In the first few months of 2026, the spread between 10-year and 2-year Treasuries narrowed, while the spread between the 10-year and 3-month Treasuries widened only slightly.

These spreads remain far wider than they were a year ago, which could potentially support year-over-year NII comparisons in the near term. Still, investors will want to see strong full-year NII guidance from banks.

Overall loan growth, which plays a key role in sustaining NII, will also get a spotlight. With consumers feeling the strain of stubborn inflation and a "low hire, low fire" labor market, loan growth could potentially slow. If it does, it will be important to monitor banks' earnings calls to see whether it's a broad-based slowdown or something that's concentrated in only a few loan categories.

In addition to NII, trading revenues will be in focus given the market volatility caused by the Iran war late in the first quarter. Trading revenues mainly reflect the income banks generate from facilitating institutional trades in equities, fixed income, commodities, and currencies. Periods of elevated volatility can potentially increase banks' trading revenues since trading volumes tend to rise.

Trading revenue results were already strong in the fourth quarter of last year. JPMorgan Chase, for example, saw its equity trading revenues spike 40% year over year to $2.9 billion, while Goldman Sachs' (GS) equity trading revenues surged 25% year over year to $4.3 billion. Topping those growth figures could be challenging, so it's something investors will be closely monitoring.

Speaking of mergers, mergers and acquisitions powered through 2025 with 68 valued at $10 billion or more globally through early December after a sluggish 2023 and 2024, The Wall Street Journal reported. That's almost double to 2024, when only about 30 were valued at $10 billion or more.

Bank executives sound encouraged that this might continue in 2026, helping the largest Wall Street banking firms.

"Large deals are driving the market," said Ivan Farman, global co-head of M&A at Bank of America, according to The Wall Street Journal. "And when you see big deals, it's a sign of CEO and boardroom confidence."

Deal-making accelerated in 2025 as tariff concerns eased and companies anticipated a more relaxed regulatory environment. Recent M&A includes competing bids by Netflix (NFLX) and Paramount Skydance (PSKY) to buy parts or all of Warner Bros. Discovery (WBD) and July's acquisition of Norfolk Southern (NSC) by Union Pacific (UNP).

Earnings calls typically offer investors more color on how banking executives see the IPO and M&A picture shaping up.

Big banks like JPMorgan Chase, Bank of America, and Goldman Sachs tend to report positive surprises quarter after quarter, often improving market sentiment. They certainly might do that again, considering the favorable yield curve. But their outlooks and observations about the health of business and consumers can also play into the stock market's response.

Overall, analysts expect third-quarter S&P 500 financials sector earnings to climb 6.6%, according to early December data from the London Stock Exchange Group (LSEG) Institutional Brokers' Estimate System, or I/B/E/S. That compares with third-quarter earnings growth of 25%. The financials sector includes many smaller banks, brokerages, insurance companies, and payment firms, but big banks often draw the most focus.

As always, each institution's general level of loan activity and the quality of their existing loans could reflect the tariff environment and uncertainty leading up to the government's shutdown crisis that took place during the first half of the fourth quarter. Mortgage rates remained above 6% throughout the fourth quarter, and homebuilding firms disappointed with their recent earnings reports. This may be more relevant for regional banks that deal more in the housing market.

Trading activity at Wall Street banks is another metric to watch. JPMorgan Chase reported record third-quarter market revenue as that category rose 25% year over year. Fixed income revenue rose 21% that quarter while equity revenue rose 33%.

Here are three additional things to watch as big banks report.

As far as headwinds, bank investors will likely be focused on credit quality this earnings season amid concerns about inflation and the labor market.

"I see banks' biggest headwind as the one-two punch of rising prices from the Middle East conflict and a job market that's clearly slowing," Coffey said. "We actually lost jobs in February, and the Fed can't cut rates with inflation reaccelerating. That's tough for banks. Borrowing costs stay high while everyday consumers start struggling to keep up with their bills."

If the economy does weaken substantially, analysts and investors will likely be watching banks' loan portfolios and their borrowers' ability to repay their debts. One key area to monitor is loan loss provisions, or the funds banks put aside in case loans go bad.

If banks sharply increase their loan loss provisions in the first quarter, which they tend to do when they're afraid of a rise in defaults, it could be evidence they're preparing for an economic slowdown. This can weigh on earnings growth.

Investors could also track any rise in loan delinquency rates for signs of consumer stress in banks' earnings. In the fourth quarter of 2025, aggregate delinquency rates worsened slightly, according to the New York Federal Reserve's Household Debt and Credit Report. Roughly 4% of mortgages, 7% of auto loans, 8% of credit cards, and 15% of student loans were past due by 30 days or more. Also consider tracking net credit card charge-off rates—the percentage of credit card debt banks expect they won't be able to recover.

Stress in the private credit market has also drawn increased attention this year, with multiple private credit funds facing liquidity issues and a few high-profile borrow defaults. Earnings call discussions about those or associated risks may make sense. Moody's reported that U.S. banks had over $300 billion in private credit loan exposure last October.

The key net interest income (NII) metric measures how much banks make lending minus what they pay to customers. The steeper yield curve has helped NII in recent quarters, and it steepened further in the fourth quarter. With analysts expecting this trend to continue—if not accelerate—in 2026, guidance for NII will be closely watched. Analysts expect the financials sector on the whole to deliver 9.5% earnings growth in 2026, down from the anticipated 14.1% in 2025. This could look conservative if NII guidance starts ticking higher. NII varied in the third quarter, coming in flat for JPMorgan Chase, excluding markets, but rising 9% year over year for Bank of America and up sequentially.

Technology firms recently made headlines in a negative way late last year when it became clear some were relying on loans to pump up their AI investments. Banks obviously played a role, so the question is whether more of these loans will continue or if the tech industry, chastened, will begin to pull back on demand. Beyond AI, demand for loans is a key metric of economic health, and banks have their collective finger on the pulse. That means their observations on the loan environment shared in earnings releases and calls can have an impact beyond the financials sector. "A steeper yield is typically beneficial for banks, but the next question investors will need answered is whether or not loan growth remains robust and the quality of the loans doesn't deteriorate," Schwab's Coffey said.

For the major banks reporting, analysts expect the following:

JPM: Earnings per share (EPS) of $4.95, up 2.9% year over year, on revenue of $46.2 billion, up 8% from a year earlier

WFC: EPS of $1.67, up 16.92% year over year, on revenue of $21.6 billion, up 6.28% year over year

MS: EPS of $2.43, up 9.46% year over year, on revenue of $17.7 billion, up 8.91% from a year earlier

BAC: EPS of $0.96, up 16.59% from a year earlier, on revenue of $27.7 billion, up 8.99% from a year ago

GS: EPS of $11.57, down 3.2% from a year ago, on revenue of $14.4 billion, up 4.15% from a year ago

C: EPS of $1.67, up 24.55% year over year, on revenue of $20.45 billion, up 4.43% from a year ago