To The Moon

$JPMorgan Chase(JPM)$ $Bank of America(BAC)$ $Wells Fargo(WFC)$ $Citigroup(C)$ $Goldman Sachs(GS)$

The second-quarter earnings season of 2025 is upon us, and few sectors will be watched as closely as banking. After a year of strong market gains and resurgent investor confidence, the six largest U.S. banks — JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley — are set to report results that could either justify their elevated stock prices or raise new questions about sustainability in a more uncertain macroeconomic climate.

With the S&P 500 financials index up roughly 18% year-to-date, powered by better-than-expected loan growth and improving capital markets activity, expectations for the big banks have crept higher. Yet, headwinds remain: net interest margins have likely peaked, trading revenues face a tough year-over-year comparison, and the regulatory landscape is tightening. Against this backdrop, the coming earnings reports will serve as a critical test of whether these giants can sustain both their profitability and their share price momentum.

A Banner Start To 2025 — But Can It Last?

The first half of 2025 was kind to banks and their shareholders. The Federal Reserve’s patient stance on interest rates, combined with a soft landing in the U.S. economy, has kept credit quality high and loan demand steady. At the same time, capital markets have revived, thanks to a wave of IPOs and corporate debt issuance amid easing financial conditions.

JPMorgan Chase, the sector bellwether, saw its stock climb nearly 20% through June, trading at levels close to all-time highs. Goldman Sachs and Morgan Stanley, meanwhile, benefitted from a rebound in investment banking fees and advisory revenues, outperforming expectations in prior quarters. Even Wells Fargo and Citigroup, long considered laggards, saw their shares gain double digits this year on improved cost controls and stable credit trends.

However, valuations reflect much of this optimism. Several of the banks now trade at or slightly above their long-term average price-to-earnings and price-to-tangible book value multiples, implying that the market is already pricing in continued strong performance. That sets a high bar for Q2 earnings — and any disappointment could lead to sharp pullbacks.

The Margin Story: Peak Net Interest Income?

One of the most important drivers of big bank profitability over the past two years has been the sharp increase in net interest income (NII), as the Fed’s rate hikes widened the spread between what banks earn on loans and pay on deposits.

That tailwind may now be fading. With the Fed expected to begin cutting rates later this year, and depositors increasingly shifting into higher-yielding products, analysts expect NII growth to moderate — or even decline — for many banks in the second half of 2025.

Indeed, in Q1 several banks already reported pressure on deposit costs and slower loan growth. For Q2, analysts will watch closely for trends in NII and whether management teams adjust guidance lower for the remainder of the year. Any signals that margins have peaked could weigh on sentiment.

Q2 2025 Consensus Estimates – Big 6 U.S. Banks

Trading & Investment Banking: A Mixed Bag

Another area under scrutiny will be the performance of trading and investment banking divisions. After a lackluster 2023, capital markets activity rebounded strongly in the first half of 2025. The IPO market reopened, debt issuance picked up, and M&A activity improved modestly.

Goldman Sachs and Morgan Stanley, which derive a larger share of their revenue from these businesses, have already seen the benefit reflected in their stock prices. But Q2 will offer a clearer picture of whether that momentum is sustainable or merely a temporary bounce.

One potential challenge: market volatility declined sharply during the quarter, which may weigh on trading revenues, especially in fixed income. Equity underwriting may remain robust, but advisory fees are likely to stay below pre-pandemic peaks. Investors will look for commentary from executives on deal pipelines and client appetite going into the second half.

Credit Quality: So Far, So Good

Despite fears of a consumer or corporate credit downturn, credit quality at the big banks has remained remarkably resilient. Charge-offs and delinquencies have ticked up from historic lows, but they remain manageable and well within reserve levels.

The soft landing narrative has been a boon for lenders, as unemployment remains low and corporate balance sheets stay healthy. In Q2, analysts expect a modest uptick in provisions for credit losses, but nothing alarming. Any unexpected deterioration in commercial real estate, however, could become a source of concern, especially for banks with sizable office loan exposure.

Cost Discipline And Capital Requirements: A Balancing Act

Another theme likely to dominate Q2 earnings calls is cost discipline in the face of regulatory pressure. The industry continues to lobby against proposed Basel III Endgame capital requirements, which could require big banks to hold significantly more capital against risk-weighted assets.

Several banks have already announced headcount reductions and technology investments aimed at improving efficiency and offsetting higher capital costs. Investors will listen for updates on expense management initiatives, as well as any guidance on capital returns — particularly buybacks and dividends — which have been a key driver of shareholder returns in recent years.

Market Sentiment: Cautious Optimism Or Complacency?

Heading into earnings season, investor sentiment toward the banking sector remains broadly positive, but not euphoric. Analyst estimates for Q2 earnings have edged higher over the past two months, reflecting solid trends in credit and capital markets activity.

Yet, hedge funds and other institutional investors have pared back some positions, wary of the high valuations and potential disappointments on the horizon. The VIX remains low, suggesting limited concern about near-term volatility — but that complacency could be tested if results underwhelm.

Retail investors, for their part, have been active buyers of bank stocks in 2025, attracted by their strong performance, attractive dividend yields, and perceived value relative to technology and growth sectors.

Valuations: Fully Priced Or Room To Run?

At current levels, big bank stocks appear reasonably valued relative to the broader market, but less compelling than they did a year ago.

For example, JPMorgan trades at roughly 12.5x forward earnings, slightly above its 10-year average of 11.8x. Bank of America and Wells Fargo also trade at premiums to historical averages, while Citigroup remains discounted, reflecting its ongoing restructuring challenges. Goldman Sachs and Morgan Stanley, more tied to capital markets, trade at around 11x and 12x forward earnings, respectively — modest by historical standards but still implying confidence in capital markets recovery.

If earnings continue to surprise to the upside and credit remains benign, there may still be upside potential. But if margins contract or trading disappoints, current valuations leave little room for error.

Conclusion: Takeaways For Investors

The upcoming Q2 earnings season will be a key inflection point for the banking sector — and for investors deciding whether to stick with the trade.

✅ High expectations: The strong start to 2025 has raised the bar for banks, and investors will expect continued delivery on NII, capital markets, and credit quality.

✅ Margin pressures: Watch for signs that net interest margins have peaked and whether banks can offset that with cost cuts or higher fee income.

✅ Capital markets: Investment banking and trading revenues need to show sustainable recovery to justify premium valuations for Goldman and Morgan Stanley.

✅ Credit stability: Thus far, credit quality has been remarkably strong, but office CRE remains a wildcard.

✅ Valuation discipline: With stocks already pricing in much of the good news, investors should be cautious about chasing rallies if results disappoint.

For long-term investors, the big banks still offer solid franchises, strong capital positions, and respectable dividends. But at current prices, selectivity and patience may be warranted. As earnings season unfolds, the market will get a clearer answer to the question: can America’s biggest banks sustain their high prices — or has the best of the trade already been priced in?

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

@Daily_Discussion @TigerPM @TigerObserver @Tiger_comments @TigerClub