Wall Street's Barometer: JPMorgan and Goldman Sachs Set the 2026 Earnings Tone

The 2026 earnings season is set against a backdrop of profound structural change. The era of "higher-for-longer" interest rates, which powered banking profits for years, has officially ended. The Federal Reserve has normalized policy, cutting rates to a range of 3.50%–3.75%. This shift dismantles the traditional net interest income engine that fueled the sector's outperformance, forcing banks to adapt to a lower-for-longer environment where profit margins are under persistent pressure.

Against this backdrop, the market's expectations are set high. Goldman Sachs Research forecasts a sturdy global GDP growth of 2.8% for the year, a solid base for economic activity. More importantly, the firm projects the S&P 500 is expected to rally 12% this year. For banks, this sets a formidable bar. Their performance will be judged not just on absolute results, but on their ability to grow earnings in line with a rising equity market and a still-expanding global economy.

Yet, a major source of uncertainty looms from the recent past. The record 44-day government shutdown in Q4 2025 created a data vacuum and operational chaos. It delayed critical federal reports used for risk assessment, froze SBA lending, and disrupted mortgage processing. While banks managed the immediate fallout for furloughed workers, the episode highlighted a vulnerability: a sector built on precise timing and data-driven decisions is exposed to political gridlock. This legacy of disruption adds a layer of friction to the already complex task of navigating a new monetary regime.

The stage is set for a season defined by adaptation. Banks must demonstrate they can pivot from interest-rate-driven profits to a new model, leveraging fee-based revenue and operational efficiency, all while operating in an environment of higher growth expectations and lingering political instability. The first major report will be the definitive test of this transition.

JPMorgan: The Bellwether's Test of Diversification

JPMorgan Chase's upcoming report is the definitive starting gun for the 2026 earnings season, and its performance will be scrutinized as a proxy for the entire sector's adaptation. The bank's nine-month 2025 run was a masterclass in diversification, driven by a powerful combination of strong investment banking and trading alongside remarkable growth in credit card and wholesale loans. This blend allowed it to offset the early pressure from a shifting rate environment, demonstrating a model that can thrive beyond pure interest-rate arbitrage. Yet the quarter ahead presents a more complex test, where the very strengths of this diversified engine are being challenged by new, costly realities.

The most immediate pressure point is the bank's massive capital expenditure into AI infrastructure. Management has signaled that 2026 expenses could balloon to $105 billion, a nearly $5 billion increase over prior models. This "expense shock" is explicitly tied to a multi-billion-dollar spend on AI-driven automation and branch expansion. While this investment aims to boost long-term efficiency and customer reach, it will inevitably pressure near-term non-interest expenses and margins. The market's cautious reaction to these previews underscores the tension between justified strategic spending and the need to maintain profitability in a lower-for-longer interest rate world.

A more tangible risk is highlighted by the integration of the Apple Card portfolio. JPMorgan is expected to book a $2.2 billion provision for credit losses this quarter specifically related to this forward purchase commitment. This is a stark reminder of the execution risks inherent in scaling new consumer finance ventures. It represents a significant, one-time hit to the bottom line and serves as a cautionary tale for any bank attempting a similar pivot into high-growth, high-cost digital lending. The provision forces a trade-off: aggressive growth in new consumer segments versus the immediate cost of potential credit deterioration.

The bottom line for JPMorgan is one of resilience under pressure. Its diversified revenue streams have carried it through a volatile period, but the path forward requires navigating a perfect storm of rising costs, plateauing net interest income, and the integration of high-profile, high-risk acquisitions. The bank's ability to manage this transition-justifying its massive AI spend while absorbing the Apple Card provision-will set the tone for the entire sector. If JPMorgan can demonstrate that its diversified model can absorb these shocks without a material earnings decline, it will validate the sector's broader pivot. If not, it will signal that the structural headwinds are more severe than anticipated.

Goldman Sachs: The Capital Markets Engine's Resilience

Goldman Sachs enters the 2026 season with a model built for volatility, but one now facing a test of its own durability. The bank's fee-based revenue engine, which has long provided a buffer against interest rate swings, is showing signs of strain. Analysts forecast a quarterly earnings of $11.69 per share, a 2.2% decline from the same period last year. This dip is particularly notable given that the consensus estimate for the quarter has actually seen a 6.1% upward revision in the past month. The divergence between a rising consensus and a falling EPS forecast points to a critical tension: optimism about top-line growth is being offset by rising costs and pressure on profitability.

The bank's 2026 outlook, as articulated by its own research arm, is one of robust deal-making. The firm projects sturdy global GDP growth of 2.8% and a 12% rally for the S&P 500, themes that should fuel investment banking and trading activity. Yet, this capital markets performance remains fundamentally vulnerable. It is exposed to the very volatility that Goldman's own research flags as a risk, and it is directly tied to the health of the broader economy. A slowdown in economic growth or a sharp market correction would quickly dampen merger and acquisition volumes, challenging the bank's ability to translate its optimistic macro view into sustained fee income.

Structural pressures are adding to this vulnerability. The disruptive entrance of stablecoins, backed by new legislation, threatens to erode traditional payment and deposit flows, forcing banks to reconsider their role in the payments ecosystem. At the same time, Goldman must industrialize its AI ambitions at scale. The bank's own report notes that many banks are under pressure to scale and move beyond pilots, but success hinges on a robust data infrastructure. Without a foundation of accurate, timely, and securely governed data, even the most advanced AI models could stall, potentially straining the very systems meant to drive efficiency and innovation.

The bottom line is that Goldman's resilience is being tested on multiple fronts. Its diversified model provides a hedge, but the bank's core capital markets engine is sensitive to the macroeconomic and technological shifts it itself forecasts. The coming quarter will reveal whether its fee income can hold up against rising costs and the inherent instability of the market conditions it expects to drive deal-making. For the sector, Goldman's performance will be a key indicator of whether a fee-based future can be profitable in a world of higher growth expectations and lower-for-longer rates.

Catalysts, Scenarios, and What to Watch

The bellwether reports will serve as a critical filter, separating structural resilience from emerging vulnerabilities. The market's focus will shift from headline numbers to the forward-looking signals embedded in management commentary and guidance. Three key areas will determine whether the sector's pivot is on track or facing a steeper climb.

First, watch for commentary on loan growth and credit quality. This is the most direct barometer of consumer health and the bank's ability to generate fee income. JPMorgan's robust lending demand, noted in the first two months of the quarter, will be a positive signal. Yet, the bank's own guidance for a $2.2 billion provision for credit losses related to its Apple Card integration is a stark reminder of the execution risks in scaling new consumer segments. Management's tone on credit underwriting standards and the sustainability of loan growth will reveal whether the consumer engine is truly durable or vulnerable to a softening economic backdrop.

Second, monitor guidance for 2026 on non-interest expenses and capital allocation. This will lay bare the trade-offs between justified strategic investment and shareholder returns. JPMorgan has already signaled that 2026 expenses could balloon to $105 billion, a nearly $5 billion increase. The key question is how this AI-driven "expense shock" will be managed alongside the Apple Card provision. Will the bank prioritize reinvestment in technology and branch expansion, or will it begin to defend margins by slowing discretionary spending? The capital allocation roadmap-dividends, buybacks, and strategic investments-will confirm whether the bank views its massive capital buffer as a tool for growth or a shield against uncertainty.

The overarching risk is a divergence between strong capital positions and weakening fee income. As Goldman Sachs' fee-based model faces pressure, and JPMorgan's NII is challenged by normalized rates, banks could be forced to defend margins. This scenario would accelerate the need to diversify revenue streams, potentially through higher-cost, lower-margin activities. The disruptive entrance of stablecoins and the escalating threat of financial crime, as noted in recent analysis, add further friction to this transition. For now, the sector's sturdy capital buffers provide a cushion. But if fee income falters while expenses hold, the pressure to industrialize AI at scale will intensify, making the quality of a bank's data infrastructure a critical, often overlooked, vulnerability. The coming reports will show whether banks are managing this complex balancing act or if the structural headwinds are beginning to outweigh their diversification gains.