Wall Street’s Earnings Season: Major Banks Enter with Uncertainty
As Wall Street’s major banks approach the first quarter earnings season, they find themselves on uncertain footing compared to their start of 2026. This week marks a significant moment as their profit-generating capabilities will be put under scrutiny once again.
The earnings announcements start on Monday with Goldman Sachs (GS) followed by JPMorgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC) on Tuesday. Bank of America (BAC) and Morgan Stanley (MS) will conclude the lineup on Wednesday.
In recent months, investors have tempered the stock prices of these prominent financial institutions after they peaked at record highs late last year. Concerns surrounding issues such as the repercussions of the private credit market’s upheaval and escalating geopolitical tensions, particularly the ongoing US-Israel conflict with Iran, have overshadowed investor sentiment. This has led to the Nasdaq KBW Bank Index (^BKX) witnessing its worst first quarter since the mini banking crisis of 2023, although the index has slightly rebounded, up 1% year-to-date.
Despite the challenges, analysts remain cautiously optimistic about the upcoming quarterly results. Data from Bloomberg suggests that collective profits for these six banking giants could rise by 5% year-on-year. There is also an expectation of improvements in overall deal-making and trading fees.
However, as HSBC analyst Saul Martinez notes, the exuberance observed earlier in the year has dissipated. “While there’s renewed optimism and expectations for solid results, it is not as bullish as it was in January,” he said, adding that this tempered outlook may actually create a healthier environment.
The rhetoric from bank leaders during earnings calls may be as crucial as the results themselves. Their insights on merger and acquisition activity, exposure to private debt, and the overall health of the US economy—especially in light of persistently high oil prices—will be closely monitored by investors.
A year prior, amidst the rollout of tariffs by the Trump administration, executives voiced concerns about the freezing deals market and the potential for a recession. While those fears were later alleviated, today’s landscape carries different worries, with Bank of America analyst Ebrahim Poonawala indicating that "stagflation" is now at the forefront of concerns. The risk of a recession looms larger if geopolitical conflicts lead to prolonged supply chain disruptions and further increases in oil prices.
The private credit sector has also raised red flags. Earlier this year, anxiety emerged surrounding the significant exposures private debt funds have in loans to software companies facing disruption due to advances in artificial intelligence. Recent weeks have seen a flurry of redemption requests across major private fund firms, including Apollo, Blue Owl, BlackRock, and Carlyle. Many of these firms have begun imposing limitations on withdrawals, typically capping them at 5% quarterly.
These banking institutions not only lend to private credit funds but also manage their own. Fed Chair Jay Powell and JPMorgan CEO Jamie Dimon have downplayed the broader implications of these developments on the financial system.
Howard Marks, co-founder of Oaktree, addressed these concerns in a recent memo, highlighting that the implications of AI for the software sector, liquidity challenges in private assets, and uncertainty regarding the pricing accuracy of direct lending funds have been overlooked during more prosperous times. “People may not have asked enough questions or paid enough attention in the good times,” he acknowledged.
In his letter to shareholders, Dimon reiterated that numerous participants in the private credit space may not perform equally well, suggesting that the market may face challenges ahead.
As this earnings season unfolds, the balance between cautious optimism and underlying challenges will be a focal point for investors, signalling what direction Wall Street’s biggest banks might take in these turbulent times.
