Bank earnings could fill US economic data vacuum

As expected, stock markets in the US rallied on Monday, reversing some of the losses from Friday’s sell off as trade tensions between the US and China eased. This has helped financial markets return to ‘normal’ at the start of a new week. Semiconductors were the best performing sector on the S&P 500 on Monday, OpenAI announced a multibillion-dollar deal with Broadcom for more AI chip development, and gold and silver made fresh record highs.

Now that the prior market trends are back on, the focus could shift to bank earnings later on Tuesday. On the roster on Tuesday are JP Morgan, Goldman Sachs, Citi, Wells Fargo, and Blackrock. The investor focus on these earnings reports could be even more intense than usual since they could fill some of the information vacuum that has been caused by the delayed release of key economic data releases due to the US government shutdown.

Tariff risks and private debt market wobble on the agenda

Banks are an important source of information about the state of the US economy, and there is lots of anticipation about what bank CEO’s might say about tariffs, the economic outlook, and the strength of the US consumer. The timing of these Q3 earnings reports is interesting, as it comes soon after the bankruptcy of First Brands, a car parts maker, and Tricolor, a Texas-based auto lender, whose collapse has caused waves around Wall Street. The fear is that the private debt market, which has flourished in recent years, has been expanding too rapidly and supplying firms that simply can’t ever afford to pay the money back. This could cause major problems for the overall financial system if there are more First Brands and Tricolors out there.

Banks positioned for strong Q3

While the backdrop for parts of the financial sector are challenging, particularly for private credit markets, Wall Street’s biggest and most established lenders are poised for another strong quarter. Analysts expect Goldman, JPM, Citi and Wells Fargo to report revenues of just bovver $101 bn for last quarter. The bulk of earnings are expected to come from resilient trading revenues, as stocks and precious metals made multiple record highs, and a strong rebound in dealmaking activity.

There has been more than $1 trillion of deal making activity so this year. Private Equity deal making surged in September, which included the lucrative $55bn transaction of Electronic Arts. This upswing in transactions is all juicy revenues for the world’s biggest investment banks.

Banking stocks: is the good news already priced in?

Banking stocks have seen their share prices surge in recent months, and the S&P 500’S banking sector is higher by 31% YTD, more than the 13% gain for the overall index, as you can see in the chart below.

Chart 1: S&P 500 banking index and the S&P 500, normalized to show how they have moved together this year.

Source: Bloomberg and XTB

A lot of the good news could already be priced in for the US’s largest banks, which is why the market reaction is likely to be driven by forward guidance. If the biggest bank CEO’s including Jaime Dimon from JP Morgan, talk about a strengthening environment for dealmaking and continued robust trading revenues, then we could see bank stocks extend recent gains.

Important questions will also be asked about loan loss provisions and the strength of US consumer spending. In the absence of overarching national economic data, the banks can help us to fill in the blanks and draw conclusions about the strength of the US economy.

JP Morgan: deep dive into Q3 results

Looking a bit deeper at JP Morgan’s (JPM) results, the market expects the bank to report revenues for Q3 of $45.4 bn, and net income of $13.37bn,however there is a risk of an upside surprise. Trading revenues and banking fees are expected to rise at a double-digit pace compared to a year ago, and net interest income remains solid as expectations for Fed rate cuts have remained stable in recent months. Asset and wealth management could be another bright spot in this earnings report. The lowering of capital requirements for the US’s largest banks, which would allow them to hold more low risk asset like Treasuries, is also likely to be discussed on the earnings call. Dimon’s view on this is well known, he supports reducing capital requirements. However, the market will be looking for his view on what this means for JPM’s bottom line.  

Chart 2: JPM’s earnings estimates have been rising for Q3 and Q4 2025.

Source: XTB and Bloomberg