Bank Earnings Are Coming In, Can This Rally Keep Going?

Bank stocks have been on fire.

In recent weeks, shares of America’s biggest banks—JPMorgan, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley—have rallied hard. Some are hitting fresh 52-week highs, others are pushing all-time records. Financials have suddenly become one of the most popular trades in town.

But here comes the real test: Can earnings season support these gains?

What Drove the Rally in the First Place

There’s a mix of reasons behind the rally—and they’re all pretty logical:

Inflation is easing, and markets are pricing in potential rate cuts by the Fed. Lower rates tend to boost loan growth and ease funding costs for banks.
Tariff anxiety has cooled off—at least for now—after Trump's recent walk-back on aggressive trade action.
A softer regulatory stance under the Trump administration is giving banks room to breathe, with expectations building for looser post-crisis rules.
Broader market recovery has lifted risk appetite, and banks, being closely tied to the economy, are natural beneficiaries.

The KBW Bank Index is up 9.6% in the first half of 2025—the strongest first-half showing in four years.

Earnings Are the Real Decider

While sentiment has clearly turned bullish, investors now need to see results.

The biggest banks start reporting second-quarter earnings next week. Wall Street expects both revenue and profit to grow year-over-year, helped by steady consumer spending, solid trading activity, and early signs of recovery in investment banking.

But here’s the catch—a lot of that optimism is already priced in.

HSBC analyst Saul Martinez just downgraded JPMorgan and Bank of America. He still likes their fundamentals, but thinks valuations have gotten stretched. “JPMorgan shouldn’t be trading like a tech giant,” he wrote, pointing out the bank’s premium valuation compared to peers.

Bank of America’s Ebrahim Poonawala echoed the same concern in a recent note titled “Time for a breather?” He says the rally can only continue if banks raise their forward guidance or announce larger buyback plans.

What Investors Will Be Watching Closely

As always, there are a few key things to focus on in the earnings calls:

Net interest income (how much money banks make from the difference between what they earn on loans and what they pay on deposits)
Trading and investment banking results after a volatile second quarter
Shareholder returns, especially whether buybacks will ramp up under a looser regulatory regime
Management commentary on the economic outlook, dealmaking trends, and their take on upcoming Fed policy shifts

Trump-appointed regulators are already signaling a more hands-off approach, which could further unlock earnings potential for large banks. KBW’s Christopher McGratty says this shift could lead to “meaningful upside” in buybacks for universal banks and even large regionals.

My Take This Rally Needs Real Earnings to Keep Going

This has been a powerful move in bank stocks—but the next leg up will depend entirely on whether the earnings back it up.

If the results are strong, forward guidance is upbeat, and capital returns accelerate, we could see more upside. But if results come in merely “in line” and executives stay cautious on the outlook, don’t be surprised to see some pullbacks.

For now, it’s a wait-and-see moment. I wouldn’t be chasing highs at this level, but I’ll be watching the earnings closely. The best bets will be banks with resilient profit engines, reasonable valuations, and a willingness to return capital to shareholders.