Bank Stocks Have Worst Start to Year Since 2023 as Results Loom

Earnings season kicks off Monday with Goldman Sachs Group Inc., followed by JPMorgan Chase & Co., Citigroup Inc., Wells Fargo & Co., Bank of America Corp. and Morgan Stanley later in the week.

The six biggest Wall Street banks are expected to post solid first-quarter results after deregulation kicked in and weeks of market volatility lifted trading activity.

More broadly, analysts anticipate that financial companies in the S&P 500 will report 16% earnings growth in the first quarter compared with 12.5% for the rest of the equities benchmark, according to data compiled by Bloomberg Intelligence.

However, the numbers will be far less important than what executives say about the outlook for private credit, interest rates and dealmaking activity, and the impact of the war in Iran on economic growth and inflation. Any discussions about the impact of $100-plus oil will be closely watched as well.

"As goes the conflict, so go bank stocks," said Mike Mayo, head of U.S. large-cap bank research at Wells Fargo. "If the conflict heats up in the short term it's anyone's guess. It's hard to have too much conviction unless you have some unique perspective on the conflict."

The management commentary should offer insight into the health of the American consumer and the strength of the world's largest economy. Lenders also provide a good read on the state of other companies, via spending and corporate dealmaking activity.

"The key will be guidance for the rest of the year and if these macroeconomic pressures are starting to reveal any cracks in credit quality," said Bloomberg Intelligence analyst Herman Chan. Banks reaffirming guidance would be considered a positive, he added.

Looming Credit Risks

The risks bubbling up in the $1.8 trillion private credit industry are looming over the shares of banks, asset managers and business development companies heading into this earnings season. Jefferies Financial Group Inc. already reported a $17 million loss in its first-quarter results due to the bank's involvement in the recent credit blowups of Market Financial Solutions and First Brands Group.

"We don't see this as game changing in terms of private credit in and of itself changing the earnings trajectory and outlook for the banks," said Ebrahim Poonawala, bank analyst at BofA Securities. "But, you do want a little bit more color details from the banks when they report next week."

With big bank market valuations tumbling during the first-quarter selloff and fundamentals largely intact, there are some "quality stocks now on sale," according to UBS analyst Erika Najarian. "Recent YTD performance could unearth some opportunities, especially given strong momentum in direct lending, capital markets, and de-regulation for the industry," she wrote in a note to clients on April 7, upgrading Morgan Stanley shares to buy.

Other Wall Street pros agree. Wells Fargo's Mayo, a longtime banks bull, says that while guidance may be cautious and narratives are likely to be focused on the conflict "longer-term investors can view this as a buying opportunity."

"The $8 trillion investment grade bond market says that banks are safe, if not safer than the average corporation," Mayo said. "Whereas, the stock market marks bank stocks at a 40% discount. So somebody's right, somebody's wrong."

Shares of regional lenders have proved more resilient than big banks this year, after the group underperformed in 2025. The resilience "reflects regionals' lower perceived risk in areas like lending to non-bank financials and less worry over expenses versus the expected cost pickup at the largest banks," Bloomberg Intelligence's Chan said.

If macro risks fade, Morgan Stanley analyst Manan Gosalia thinks most lenders are set to outperform "given significant capital free up, strong earnings momentum and low credit risk."

"Full-year guidance is still achievable for most banks," he wrote in a note to clients on March 31. "So lower valuations set up an attractive risk-reward into earnings as banks reaffirm their outlooks."

Still, with the war in Iran in flux and the two-week ceasefire in question, investors most need to know about the trajectory for inflation and the economy in order to assess which way bank stocks, and the market, are going.

"Stocks likely need to consolidate following any bounce until investors have a better sense of where growth and inflation are headed," BofA's Poonawala said. "Assessing this will take a few weeks or a couple of months."

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