Wall Street's Biggest Banks Set to Beat Earnings Expectations Amid Regulatory Tailwinds

US banks kick off earnings season with subdued profit expectations, setting the stage for lenders to beat expectations and continue their stock market rally. Strategists see regulatory tailwinds, including lighter restrictions and expectations for more mergers and acquisitions, contributing to the sector's growth. The KBW Bank Index is up 37% since April and is near a record, while financials have a 13.7% weighting in the S&P 500 despite accounting for 18.6% of earnings. Analysts predict earnings for the S&P 500 Financials Index to fall about 1% in the second quarter.

US banks are set to kick off their earnings season this week, with strategists expecting subdued profit expectations to pave the way for lenders to beat expectations and continue their stock market rally. The KBW Bank Index, which includes 24 major US banks, has surged 37% since its April low and is near a record high, outperforming the broader S&P 500 and the tech-heavy Nasdaq 100 Index [1].

Despite accounting for 18.6% of the overall earnings in the S&P 500, financials have a 13.7% weighting in the index, a gap that exceeds its 15-year average [2]. Analysts predict earnings for the S&P 500 Financials Index to fall about 1% in the second quarter [2]. This discrepancy suggests that investors may be undervaluing the sector, leaving room for potential gains if profits come in strong.

Several marquee names are reporting this week, with JPMorgan Chase, Citigroup, and Wells Fargo kicking off earnings season on Tuesday. Goldman Sachs, Morgan Stanley, and Bank of America are expected to report later in the week.

Strategists see several tailwinds for the sector, including the potential for lighter regulatory restrictions under the Trump administration and expectations for more mergers and acquisitions [1]. The Federal Reserve's stress tests from earlier this month have cleared the path for lenders to provide updates on share buyback plans and additional capital holdings above regulatory requirements [1].

The banking industry is at the precipice of a materially positive shift in the regulatory environment, with major banks like JPMorgan, Bank of America, Wells Fargo, Morgan Stanley, Goldman Sachs, and Citigroup set to benefit from deregulation [1]. Additionally, a possible watering down of the Basel 3 international capital bank rules could provide an impetus for share buybacks [1].

Trading revenue increases for the biggest US banks are also predicted, largely due to record trading days following Trump's "Liberation Day" tariff announcements in April [1]. However, the sector's rising valuation and uncertainty over how the trade war might affect banks' earnings, as well as lingering doubts about the health of the consumer, pose risks to the group [1].

Mike Mayo, a Wells Fargo analyst who accurately predicted a big rally in the sector last year, believes deregulation and earnings growth will fuel further gains in financials [1]. "We don't think the stocks are pricing in the full benefits," he said.

References:
[1] https://www.investmentnews.com/equities/big-banks-begin-earnings-season-set-to-beat-expectations/261277
[2] https://www.bloomberg.com/news/articles/2025-07-14/big-banks-modest-earnings-outlook-opens-door-for-more-gains