Bank earnings to cap banner 2025, set the table for growth in 2026: 'Everything is moving up at the same time'

Economic

Summary:

U.S. banks are set to cap a stellar 2025 with record profits and trading revenue, as analysts expect economic growth, regulatory relief, and lower rates to support continued earnings momentum into 2026.

Last year was a great one to be a Wall Street bank. The coming week will tell us just how great 2025 was.

America's biggest banks will report fourth quarter and annual results in the coming days, with JPMorgan Chase (JPM), the nation's largest bank, kicking off proceedings with its results on Tuesday morning.

The firm is expected to reveal another year of record revenue and profits.

Bank of America (BAC), Citigroup (C), and Wells Fargo (WFC) are all expected to report results on Wednesday morning. Investment banking powers Goldman Sachs (GS) and Morgan Stanley (MS) will report Thursday morning. Each firm is expected to show that annual profits climbed from the year before. Shares in all six of the major banks outperformed the S&P 500 (^GSPC) in 2025.

Analysts also expect the banks to each report a record annual haul in trading fees, with the exception of Wells Fargo. Its smaller but growing team of investment bankers is set for its own record in dealmaking fees.

"Everything is moving up at the same time, right now," said Saul Martinez, an analyst covering large US banks for HSBC.

From large volatility spikes to a climbing stock market and a lending pickup, "you've seen material increases in earnings and profitability power for these companies," Martinez said.

Several equity analysts, including Bank of America's Ebrahim Poonawala, already have enough bluster to call 2026 the third consecutive year that the KBW Nasdaq Bank Index (^BKX), which houses many of the country's biggest banking stocks, outperforms the S&P 500. The BKX rose 29% in 2025, while the S&P 500 rose 17%.

"Banks outperformed the S&P 500 for three consecutive years in late 1990s, and then again in early 2000s. We see similarities to both," Poonawala wrote in a recent note to clients.

The industry's earnings outlook today "is best it has been post-Great Financial Crisis," Poonawala added.

The US economy is expected to reaccelerate in 2026, with bankers also looking at the most regulatory leeway they've had since post-financial crisis reforms were passed in 2010. Lending growth is expected to rise, while lower rates should serve as another tailwind for the industry. Meanwhile, M&A momentum isn't expected to slow.

"The way 2025 unfolded, it was a story of increasing momentum throughout the year since the market paused in April and March," said Jay Hofmann, JPMorgan's head of M&A for North America. "At the moment, there is no reason to believe that the economic factors underpinning this are going to reverse."

There's even growing debate that investors are beginning to value banking giants like technology companies, given potential productivity and efficiency gains from injecting more technology, like AI, and next-gen assets, like crypto, onto their digital platforms.

"I think the large, tech-forward banks are going to start to see margin expansion and trade more like tech stocks in the future," Tom Lee, head of Fundstrat Global Advisors, said on CNBC in late December.

While it's "too early" in either case for these initiatives to materially impact bank bottom lines this year, investors "could start to price in the potential before earnings benefits materialize," BofA's Poonawala noted.

The run higher has pushed up valuations and created some questions about whether the stock rise enjoyed by these firms can endure, even with the variety of fundamental factors working in their favor.

Big banks "aren't cheap, but we still like them," KBW head of research Chris McGratty said. Absent a market shock, McGratty thinks these firms' earnings momentum has staying power.

But others on the Street aren't as convinced.

JPMorgan, Bank of America, Citigroup, and Wells Fargo saw an average stock gain of 40% in 2025. According to calculations from Wolfe Research analyst Steven Chubak, just a third of that performance came from higher earnings growth, which means the rest of the performance was a result of multiple expansion, or how much investors are paying for each dollar of earnings from these firms.

Chubak downgraded shares of both JPMorgan and Bank of America on the expectation that their 2026 earnings will be average.

As Chubak wrote to clients in a note on Jan. 7, "It's all just a little too perfect in Bank-land."

Source: finance.yahoo

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Bank earnings to cap banner 2025, set the table for growth in 2026: 'Everything is moving up at the same time'

Source: finance.yahoo

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