Big Banks Are Setting the Tone as Earnings Season Kicks Off

Key Points

• Despite a potential rash of private credit risk, when the big banks kicked off Q3 earnings season, their strong financials were on full display.  
• Last week, the big banks posted blowout earnings, quelling any fears about potential “cockroaches” and setting the tone for earnings season. 
• Despite insurance stocks dragging down financials this year, the broad sector remains a safe play for the remainder of the year and into next.

As Q3 earnings season kicked off last week, the market received a scare when negative news about two small regional lenders broke. 

Auto parts lender First Brands filed for Chapter 11 bankruptcy protection with around $6.1 billion in debt on its books, while Tricolor—a subprime auto lender and dealer—filed for Chapter 7 bankruptcy citing alleged systemic fraud. 

In response, JPMorgan Chase NYSE: JPM CEO Jamie Dimon issued a warning about looming private credit risks in the economy, stating that “when you see one cockroach, there are probably more.” 

But the operative words there are “private credit.” And when it came time for the publicly traded big banks to report, their earnings proved that the likes of First Brands and Tricolor aren’t a contagion that will impact the banking industry broadly.    

Big Banks Demonstrated Big Q3 Financial Results

Though the financials sector has performed fifth best among all 11 S&P 500 sectors this year, its 9.23% year-to-date (YTD) gain trails the index. Some of that can be attributed to a poor year from the insurance industry, whose stocks fall under the financials’ umbrella. 

Large cap insurers like Progressive NYSE: PGR, Marsh & McLennan Companies NYSE: MMC, and UnitedHealth Group NYSE: UNH—with YTD losses of nearly 8%, 11%, and 28%, respectively—helped drag down the overall sector. 

However, despite financials’ relative underperformance compared to the market, there’s been one notable exception: big banks, which proved that they’ve been up to business as usual when they reported Q3 earnings last week. 

JPMorgan Chase crushed forecasts. Quarterly revenues of $46.4 billion showed around 9% year-over-year (YOY) growth, while earnings per share (EPS) of $5.07 grew by 16% YOY, beating analysts’ estimates of $4.83 by more than 10%. Annualized, the bank’s EPS is expected to grow 7.29% next year. 

It was a similar story for Bank of America NYSE: BAC, Morgan Stanley NYSE: MS, and Wells Fargo NYSE: WFC, all of which beat on Wall Street analysts’ top and bottom line expectations. Meanwhile, Citigroup NYSE: C missed EPS forecasts by just 3 cents and Goldman Sachs NYSE: GS missed on revenue expectations despite its $11.33 billion quarterly figure representing a 19.5% YOY increase.  

So it’s no surprise that those stocks have not only outpaced the S&P 500 this year, but almost all of them have trounced the market with the following YTD gains: 

• BAC: 16.32%
• WFC: 20.76
• JPM: 23.79%
• MS: 27.61%
• GS: 32.00%
• C: 40.48%

Of course, Q3 is in the rearview mirror. But isolating some key themes that emerged from the big banks’ reporting provides hints about what investors can expect in Q4 and beyond. 

Key Takeaways From Big Banks’ Earnings Calls

One significant theme among all of those aforementioned banks was a surge in investment banking fees as well as trading revenue. Much of that is due to significant increases in mergers and acquisitions (M&A) activity and an increase in IPO activity, both of which created favorable market conditions for the big banks. 

Global M&A activity in Q3 reached its highest level in a decade with $371 billion in completed deals. That figure surpassed the total value of all M&A activity in the first half of the year. North America led the way with $246 billion—more than double the amount from the same quarter one year earlier. 

Meanwhile, IPOs filings saw their highest total since Q4 2021 on the backs of numerous successful recent launches, suggesting that investment banks were backing companies with stronger fundamentals and, subsequently, higher likelihoods of profitability.

JPMorgan Chase, for example, saw a 9% YOY increase in trading revenue, which stood at a record $9 billion. Revenue from its investment banking fees rose 16% YOY, with fixed income and equity trading seeing gains of 21% and 33%, respectively. 

Bank of America’s investment banking revenue surged a staggering 43% YOY to more than $2 billion, while Wells Fargo reported a quarterly record of $840 million in investment banking fees, up 25% YOY.  

A Financials ETF for Broad Exposure

While earnings season is in its early innings, the big banks have come out swinging. Judging by their performances last quarter, defying talk of historical valuations, and everything bubble, and ongoing uncertainty from the Trump administration’s tariffs. 

For investors who are looking for broad exposure to financials over the remaining months of 2025, the Financial Select Sector SPDR Fund NYSEARCA: XLF mirrors, as closely as possible, the S&P 500’s financials sector, which could see a rebound over the last quarter and into next year with more balanced performances from the stocks representing its underperforming industries—like insurance. 

The XLF’s institutional ownership stands at nearly 73%, and its dividend yields 1.38%, or 73 cents per quarter annually. 

Meanwhile, the big banks continue to be a safe bet, with Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo all currently carrying average 12-month price targets that imply potential upside.