U.S. Bank Earnings Season Kicks Off This Week: Can Big Banks Hold Steady Amid Trade War Clouds?

The latest U.S. earnings season is set to kick off this week, with some of the largest banks, including JPMorgan Chase, Wells Fargo, Morgan Stanley, and Bank of New York Mellon, releasing their Q1 financial results. These reports are eagerly awaited, especially as the outlook for U.S. banks has shifted throughout the year.

Let’s first take a look at the bright spots. From January to mid-February, major U.S. banks were on fire. Several saw their stock prices climb by double digits, hitting new highs, as the broader economic picture seemed stable. But, in the wake of President Trump’s escalating trade war rhetoric, a dark cloud has loomed over the markets, and banks have felt the heat. The KBW Bank Index has dropped around 25% from its peak earlier this year, and it’s down over 17% for 2025 so far.

What’s in Store for This Earnings Season?

Despite the recent volatility, the earnings reports for the first quarter are expected to still be better than many initially anticipated. According to analysts, U.S. banks should show solid performance, largely driven by the stability seen earlier in Q1, before the trade turmoil started to intensify.

Here's a quick look at some key forecasts:

Morgan Stanley ($MS): Expected Q1 EPS of $2.21, slightly higher than the initial forecast of $2.17. Revenue is expected to hit $16.6 billion, up nearly 10% year-over-year.
JPMorgan Chase ($JPM): Expected Q1 EPS of $4.64, up from the earlier forecast of $4.56. Revenue is expected to be $44.05 billion, showing a growth of over 5%.
Wells Fargo ($WFC): Expected Q1 EPS of $1.23, a small beat compared to the earlier forecast of $1.20. Revenue is expected to be $20.76 billion, a slight decline from last year’s $20.86 billion.
Bank of America ($BAC): Expected Q1 EPS of $0.82, up from $0.76 in the same quarter last year, but down from an earlier forecast of $0.86. Revenue is expected to grow by over 4%, reaching $26.93 billion.
Goldman Sachs ($GS): Expected Q1 EPS of $12.39, slightly above the forecast of $11.99. Revenue is projected at $14.84 billion, up more than 4% year-over-year.
Citigroup ($C): Expected Q1 EPS of $1.86, a 17% YoY increase, though slightly below the earlier forecast of $1.89. Revenue is expected to be $21.32 billion, a modest increase from $21.1 billion last year.

Goldman Sachs Weighs in on Key Themes

Goldman Sachs has highlighted three major themes that investors will be closely watching:

1. Net Interest Income (NII): Given the challenges of loan growth and a flattening yield curve, Goldman has lowered its NII growth expectations for the coming years. They anticipate a modest 1% YoY increase in Q1, with a full-year NII growth of just 5%. This is a key area of concern for banks, as lower interest rates and economic slowdowns could dampen earnings from this crucial revenue stream.

2. Trading Revenues and Investment Banking Recovery: Trading revenue has held up relatively well, but there are concerns about whether it has reached its peak. Investment banking, on the other hand, has been under pressure. With market volatility expected to persist, there’s uncertainty about when the M&A and IPO markets will recover. For now, banks are expected to report stronger trading revenues, but weaker investment banking results.

3. Capital Returns: With large banks sitting on over $700 billion in excess capital, there’s an expectation that stock buybacks could rise, potentially signaling a positive outlook for investors. However, any changes in capital return plans will likely depend on upcoming regulatory changes and the political landscape, especially with the looming presidential election.

The Impact of Trade War Concerns

But here's where it gets tricky: the trade war tensions, sparked by Trump’s tariff threats, are weighing heavily on the market. Trump’s new tariffs, which are the most severe in over a century, have caused global markets to wobble, increasing fears of an economic slowdown and deepening trade uncertainty. JPMorgan has already raised its recession probability to 60%, a sharp increase from earlier forecasts.

This uncertainty could cause further instability for the banking sector. Goldman Sachs, S&P Global, and HSBC are among the institutions that have raised their recession odds for the U.S. this year, underscoring the growing risks in the economy. The main worry is that Trump's policies could reignite inflation, disrupt supply chains, and hurt global trade – all of which could stunt U.S. growth.

Volatility and Credit Card Losses

Ahead of earnings, the big banks are set to report strong trading revenues, driven by market volatility. However, the investment banking division is facing a tough road, with deal activity significantly lower than in past years. A recent report from Oppenheimer suggests that the slow recovery of investment banking will likely extend until 2028, largely due to the extreme market volatility that has made deal-making more challenging.

In addition, investors are also closely watching the growing risks in the credit card sector. After a sharp increase in consumer debt during the pandemic, a rise in defaults could be on the horizon. As the economy shows signs of slowing, credit card losses could increase, potentially hurting the profitability of major banks. Goldman Sachs and others are warning that this risk might become more pronounced as we move further into 2025.

Looking Ahead

The outlook for U.S. banks in 2025 is mixed. On one hand, strong trading revenue could provide a cushion, but on the other hand, the macroeconomic uncertainty, rising credit card losses, and potential for further market volatility present significant risks. With major banks about to report their earnings, investors will be keen to see how well they manage these challenges – and whether they’ll be able to weather the storm without revising down their full-year forecasts.

So, what do you think? Will the banks be able to navigate the stormy waters ahead, or are we in for a rough ride? #earningsessions