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).

Industry fundamentals—both present and anticipated in the future—also contributed to gains. Almost everything lined up as bank leaders might have wished during the final months of 2025.

The Treasury yield curve steepened, improving profitability for banks because they could borrow at lower rates and lend at higher ones—a trend seen likely to continue in 2026. U.S. gross domestic product (GDP) growth accelerated to an estimated 4.3% in the third quarter, possibly providing tailwinds into the fourth quarter for businesses like banks that rely heavily on the health of other industries and consumers.

Banks did some of the heavy lifting themselves, emerging from third-quarter earnings season with mostly solid performances in areas like net interest income and loan growth. Hopes for more of the same might have fueled investor interest in the sector.

Other things also worked in banks' favor. The U.S. credit market remained stable, allowing companies and many consumers to continue borrowing at rates not much above the federal funds rate. Initial public offerings (IPOs) and mergers and acquisitions (M&A) accelerated after a slow start to 2025.

"Investment banking fees rose 16% as equity capital markets and M&A activity picked up against a supportive backdrop," said Jamie Dimon, CEO of JPMorgan Chase, in the company's third-quarter press release.

The booming buildout of AI data centers—now being financed by many companies—likely gave banks another boost in the fourth quarter. So did new demands by companies now using debt financing to fund their expansion of AI infrastructure. Though some major tech companies saw their shares move lower on concerns about increased debt, the trend toward debt financing arguably helps the banks providing that capital.

Fourth-quarter financials sector market gains weren't confined to Wall Street giants. Regional banks—which are more exposed to the ups and downs of local real estate and small businesses—also performed well. The KBW Nasdaq Regional Banking Index (KRX) gained about 4% in the fourth quarter through December 29, 2025.

That said, the KRX is still down from a year ago, though some of the best-known regional banks including Regions Financial (RF) and PNC Financial Services (PNC) enjoyed stellar fourth quarters on the charts. A moribund U.S. housing market on the one hand and falling interest rates on the other create a tug of war for regional bank fortunes, with earnings season a good chance to catch up on the dynamics.

The entire financials sector got a boost in the fourth quarter from the Fed's easing cycle, which included three rate cuts between September and December that took the federal funds rate to its lowest level in three years.

"We expect a steeper yield curve, meaning that long-term rates will stay elevated even as the Fed cuts, but short-term rates will come down," said Kathy Jones, chief fixed income strategist for the Schwab Center for Financial Research, in a recent 2026 outlook discussion. "I think 10-year yields are going to have a tough time falling much below 4% unless we really can get inflation down."

With the Fed expected to cut rates at least once in 2026, according to its own projections, and significant fiscal stimulus kicking off in the new year for both consumers and corporations, the environment could be ripe for accelerated earnings growth. When companies grow, that typically means they invest in things like additional employees, equipment, and facilities. Doing much of this requires credit, and getting credit requires banking services, meaning earnings growth can be good for banks.

The credit market looks attractive from a historic point of view.

"We have seen an improving credit fundamental story with investment-grade corporate bonds," said Collin Martin, head of fixed income research and strategy for the Schwab Center for Financial Research. "Third-quarter corporate profits, which came in $4.1 trillion, were up more than 4% from the second quarter. This should bode well for creditworthiness going forward."

A steeper yield curve isn't necessarily 100% positive for banks because higher long-term rates can dampen consumer borrowing for mortgages and furniture and business borrowing for heavy equipment and new manufacturing facilities.

Another possible weight on banks in the fourth quarter and perhaps beyond is low oil prices, which could hurt drilling demand and mean less investment from the energy industry, though it also might lead to more mergers.

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 Londan 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.

The government shutdown that occupied October and part of November likely had a negative impact on GDP growth during the fourth quarter and possibly showed up on less well-known business tracking metrics as well. Slower economic growth amid the uncertainty possibly hurt bottom lines at the banks, but by how much is the question going into earnings. Businesses like defense contractors and agriculture that depend heavily on government spending possibly lightened their activity at that time, perhaps causing demand for banking services to decline. Each week of the shutdown subtracted about 0.1% from annualized GDP growth via reduced government activity, according to JPMorgan Chase. And the Congressional Budget Office (CBO) estimated that the GDP growth rate in the fourth quarter will be reduced by 1.5%.

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