Big banks enter Q2 earnings with 12% rally, analysts see more gains

Wall Street's biggest lenders enter Q2 earnings with a 12% rally and a valuation discount that leaves room for further gains.

The four largest U.S. banks report second-quarter results on July 14 with consensus pointing to 11% earnings growth for the sector in 2026, extending a rally that has pushed the KBW Bank Index up 12% this year. JPMorgan Chase, Bank of America, Citigroup and Wells Fargo all release numbers before the opening bell, and traders will treat the reports as a read on the wider earnings season.

"The setup is straightforward — accelerating loan growth, resilient credit and strong trading revenue, all available at a valuation well below the broader index," said Hannah Park, banking analyst at Edgen. "Rising estimates suggest analysts are warming to the story rather than cooling on it."

JPMorgan is forecast to post adjusted earnings of $5.62 a share on revenue of $49.5 billion, with estimates revised up 3.7% over the past four weeks. Bank of America is expected to earn $1.12 a share on $30.7 billion in revenue, representing year-on-year growth of about 25%. Citigroup's estimates have edged higher over the past three months, while Wells Fargo's have been trimmed by about 1% as the bank navigates margin pressure while pivoting toward expansion. The broader S&P 500's second-quarter earnings are projected to rise 23.9% on 11.7% higher revenue, according to FactSet.

The reports arrive as the sector trades at roughly 12 times forward earnings against 22 times for the S&P 500, a discount that has narrowed but remains historically wide. If results confirm the constructive trend, the valuation gap could close further. If they disappoint, the rotation out of AI-driven technology names that has benefited banks this year could reverse.

Regional lenders lead the rally

Regional banks have outperformed their larger peers, with the KBW Regional Banking Index climbing about 19% year to date as money rotated out of megacap technology stocks. Fifth Third Bancorp and Citizens Financial Group have led the way, both up more than 20%, supported by improving loan growth and steady asset quality. Among the money-center banks, Citigroup has fared best as confidence in its profitability builds. Capital One has slipped as it digests the Discover and Brex acquisitions, while Wells Fargo has trailed on margin contraction. Even JPMorgan, despite its bellwether status and eight consecutive earnings beats, has lagged the broader banking rally.

Rate sensitivity and credit quality in focus

The rate environment remains a central variable. Each 25-basis-point Federal Reserve cut reduces JPMorgan's net interest income by about $600 million annually, according to company disclosures. The weaker-than-expected June jobs report, which showed payrolls rising by just 57,000, eased concerns that the Fed may need to hike rates this year, removing one overhang for the sector. A net interest margin of 2.85% means the bank earns $2.85 for every $100 in interest-earning assets — a metric that will face scrutiny as the yield curve shapes lending profitability.

Credit quality has stayed benign. Household and commercial delinquencies, bankruptcies and debt-service metrics have all behaved, removing another usual worry. The area drawing more scrutiny is private-credit exposure, particularly its links to the software and data-center industries. Investors will want reassurance that the banks are not overextended there.

Trading desks appear to have had a solid quarter, with mid-quarter updates pointing to revenue growth in the 10% to 15% range. Investment banking activity has been more mixed: equity capital markets have benefited from a livelier pipeline of listings, but merger advisory work has remained subdued as geopolitical uncertainty lingers.

The last time the sector entered earnings with this combination of valuation discount and upward estimate revisions was in early 2024, when the KBW Bank Index proceeded to gain 18% over the following six months. Whether history repeats depends on whether the numbers due July 14 confirm the narrative that investors have already begun to price in.

This article is for informational purposes only and does not constitute investment advice.