Understanding how banks operate reveals their business isn’t as affected by tariffs as one might think. However, the current performance of bank stocks suggests market participants are concerned about broader economic conditions amid ongoing tariff-related uncertainty.

The following chart illustrates the performance of JPMorgan (JPM), Wells Fargo (WFC), Bank of America (BAC), and Morgan Stanley (MS) relative to the S&P 500 index since February 19^th. Notably, two of these banks will kick off the Q1 2025 reporting cycle for the Finance sector on Friday, April 11^th, before the market opens.

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While banking is not directly impacted by tariffs, these institutions are cyclical operators whose fortunes are closely tied to economic trends. The ongoing uncertainty surrounding tariffs has raised concerns about economic stability, prompting many economists to increase recession probabilities and reduce GDP growth forecasts.

The trends in the provided chart decisively indicate market sentiment is growing cautious about bank profitability. As economic conditions soften, credit demand typically declines, and asset quality can suffer. This is particularly true as some borrowers face difficulties in repaying loans.

Recent data from the Federal Reserve indicates a slight uptick in loan demand during the first quarter, particularly in commercial and industrial (C&I) loans and home-equity loans. Nevertheless, investors remain skeptical about whether these trends can continue under a challenging macroeconomic backdrop, as reflected in the stock performance of these banks.

Credit quality issues are particularly pronounced in the commercial real estate (CRE) market, which is already well accounted for at major banks. While aggregate bankruptcies in the U.S. have significantly increased since the low point during the Covid pandemic, the growth rate has stabilized in recent months. Early-stage credit card delinquencies also show a flat year-over-year growth rate, suggesting some stabilization in net charge-off levels this year.

Looking forward, expectations surrounding credit quality hinge on future economic conditions, as growth shows signs of moderation, if not a recession. Investment banking appears to be significantly impacted by declining market sentiment. Despite management teams signaling an increase in deal pipelines in recent quarters, hopes of a rebound in Q1 results have dimmed, especially with tariffs still dominating market discussions.

Anticipated Earnings for JPMorgan, Wells Fargo, & Morgan Stanley

JPMorgan is anticipated to report earnings of $4.60 per share, a decrease of 0.7% year-over-year, alongside revenues of $43.01 billion, marking a 2.6% increase from the previous year. Following its last earnings release on January 15^th, the stock performed well, reflecting positive outlook commentary. The estimate has risen from $4.54 one month ago and $4.25 three months back.

Wells Fargo is expected to post earnings of $1.23 per share, down 2.4% year-over-year, with revenues estimated at $20.8 billion, a decline of 0.3% YOY. Earnings estimates for Q1 have remained relatively stable, with the current estimate slightly down from $1.24 a month prior but up from $1.19 three months ago. The stock rose following the last quarterly release on January 15^th.

For Morgan Stanley, expectations are set for earnings of $2.32 per share, which represents a 14.9% increase YOY, with projected revenues of $16.8 billion, up 11.2%. Analysts have been increasingly optimistic, adjusting their estimates upward since the quarter began. Shares also rose following the last quarterly release for this bank.

The Zacks Major Banks industry, which includes JPMorgan and Wells Fargo, is poised to see a 0.7% increase in Q1 earnings, along with a 5.3% rise in revenues. This sector contributed nearly 50% of the Zacks Finance sector’s total earnings over the previous four quarters.

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Overall, Q1 earnings for the Zacks Finance sector are projected to increase by 1.8% compared to the same period last year, alongside a 2.8% growth in revenues.

Despite outperforming the S&P 500 over the past year, large bank stocks generally remain undervalued based on traditional valuation metrics. The following chart shows the 10-year price-to-earnings (P/E) history for the Zacks Major Banks industry against a forward 12-month P/E ratio.

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Currently, the Zacks Major Banks industry is trading at 61% of the S&P 500’s forward 12-month P/E ratio. Historically, this industry has traded between 52% and 78% relative to the index over the last decade, with a median of 62%.

Image Source: Zacks Investment Research

Initial Q1 Earnings Overview

The Q1 reporting cycle is set to accelerate with the pending announcements from major banks. Recently, several companies with fiscal quarters ending in February have been releasing their results. Thus far, 19 S&P 500 members have reported February-quarter results, contributing to the overall March-quarter data.

Collectively, these 19 companies have experienced an earnings increase of 9.4% from the same year-ago timeframe on revenue growth of 5.7%. Notably, 57.9% of these companies surpassed EPS estimates, while 68.4% exceeded revenue expectations.

The comparison charts below contextualize these Q1 earnings and revenue growth rates historically.

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Additional comparison charts illustrate the Q1 EPS and revenue beat percentages within a historical context.