U.S. Banks Set to Kick Off Earnings Season on a Strong Note

Analysts expect profits among six major banks to rise by roughly 6% from the same period last year, according to Bloomberg L.P. data.

This reporting season comes against the backdrop of record levels for major U.S. equity indices, even as the government shutdown adds an element of uncertainty to the macroeconomic environment. While the technology sector is widely expected to remain a standout performer this earnings season, supported by the ongoing “AI arms race,” more consumer-sensitive industries are likely to face pressure as households turn increasingly value-conscious.

Overall, companies in the S&P 500 are projected to post an 8.8% year-over-year increase in earnings for the third quarter, according to LSEG IBES. With valuations already stretched, strong earnings will be critical to sustaining current market levels. The index’s forward 12-month price-to-earnings ratio stands at 22.8, well above the five-year average of 19.9 and the ten-year average of 18.6, according to FactSet. Earnings growth could surpass 13% for Q3, which would mark the fourth consecutive quarter of double-digit expansion.

For banks, expectations are upbeat. Rising deal activity and strong capital positions are supporting the outlook. Yet, beneath the surface, analysts are flagging early signs of strain in consumer credit — including rising delinquencies in student and auto loans — as well as an increase in corporate bankruptcies.

Financial Sector Earnings Expected to Jump 13.2%

The financial sector is poised for one of the strongest earnings performances this season. According to FactSet, estimated earnings for the sector have climbed 5.2% since June 30, from $104.0 billion to $109.4 billion. This brings the expected year-over-year earnings growth rate to 13.2%, up from 7.6% at the end of the second quarter. Over the same period, the sector’s stock prices have gained 1.7%.

Out of 75 companies in the sector, 53 have seen upward revisions to their earnings estimates, with 16 reporting increases of more than 10%. Notable contributors to this trend include Robinhood Markets, The Allstate Corporation, Everest Group, The Progressive Corporation, Arch Capital Group, and JPMorgan Chase & Co..

All five industries within the sector are projected to post year-over-year growth: Consumer Finance (+29%), Insurance (+17%), Capital Markets (+15%), Financial Services (+11%), and Banks (+9%). This broad-based strength suggests that financials could play a stabilizing role in the broader market, especially if earnings exceed already-elevated expectations.

Strong Momentum, But Headwinds Loom

The U.S. banking sector has staged a steady rebound since April, supported by an uptick in M&A activity and a more favorable regulatory environment, which has reduced fees and streamlined supervisory processes. These tailwinds are expected to support another strong quarter for the largest banks, with net interest margin expansion and fee-based businesses contributing to topline growth.

Revenues from investment banking, trading, and wealth management are anticipated to remain robust, according to analysts at JPMorgan Chase & Co.. An improving IPO market is also offering a near-term boost to earnings, while regional banks such as Citizens Financial Group, Huntington Bancshares, and U.S. Bancorp may benefit from stronger loan growth and capital-markets activity relative to peers.

However, several headwinds could temper optimism. A prolonged government shutdown could delay public offerings, creating a near-term drag on capital-markets revenues. Consumer balance sheets are under increasing strain, with rising delinquencies in student and auto loans and a modest uptick in bankruptcies. While the labor market remains resilient, higher housing, utility, and food costs are pressuring lower-income households.

Analysts expect moderate growth in net interest income, steady fee-based revenue, and selective M&A activity to support third-quarter earnings. Still, monitoring consumer credit trends will be crucial in assessing whether this momentum can be sustained into 2026.

Key Earnings Drivers Traders Will Be Watching

Market participants will be closely scrutinizing three key areas in banks’ earnings reports to assess financial health and competitive positioning:

Dealmaking

Mergers and acquisitions, along with the IPO market, have gradually reopened in 2025 after a subdued period. A healthier pipeline of transactions is expected to support investment banking revenues this quarter. Investors will pay particular attention to advisory and underwriting activity as indicators of the broader capital-markets recovery.

Lending

The tailwind from higher interest rates, which had supported net interest income over the past two years, is beginning to reveal its downside. While net interest income remains solid, loan growth is slowing and credit quality is under closer scrutiny as borrowers face higher repayment costs. Rising delinquencies, especially in consumer lending segments, could weigh on results in the quarters ahead.

Trading

Trading desks are likely to be a bright spot once again. Heightened volatility driven by shifting expectations around monetary policy, inflation trends, and geopolitical tensions has created opportunities across fixed income, currencies, commodities (FICC), and equities. Strong trading revenue could help offset any weakness in lending margins or credit performance.

Bottom Line

Today’s bank earnings will set the tone for the broader third-quarter reporting season. With expectations running high and valuations stretched, strong results from the sector could reinforce confidence in the resilience of corporate America. At the same time, early signs of consumer strain and macroeconomic uncertainty suggest a more uneven outlook heading into year-end.

Sources: Reuters, Wall Street Journal, FactSet, Bloomberg