Banks under pressure from spiking yields ahead of q3 results

Here are the key points:

• The overall setup for the Q3 earnings season remains very favorable, with earnings growth expected to be in the double digits for the 8^th consecutive quarter. The growth momentum is broad-based, with 15 of the 16 Zacks sectors expected to enjoy positive earnings growth and the outlook steadily improving.
• Total S&P 500 earnings in Q3 are currently expected to increase +24.6% from the same period last year on +11.5% higher revenues.
• The revisions trend remains positive, sustaining the favorable revisions trend that has been in place for a year now. Since the start of Q3, earnings estimates have moved higher for half of the 16 Zacks sectors. We are seeing a similar trend for Q4 and full-year 2027 as well. 
• Micron ((MU) ) and Nvidia ((NVDA) ) continue to be material contributors to the Tech sector’s growth picture. Excluding Nvidia, Micron, and Alphabet ((GOOGL Quick ), which enjoyed an outsized gain in the preceding period, Q3 earnings for the rest of the Tech sector would be +20.7% (vs. +43.4% otherwise).

Bank earnings in the spotlight

JPMorgan (JPM), Citigroup (C) and Wells Fargo (WFC) will kick off the Q3 reporting cycle for the Finance sector on Tuesday, October 13^th. These bank stocks have lost ground lately in reaction to rising Treasury yields, as the one-year performance chart of JPMorgan and Wells Fargo shares relative to the S&P 500 index below shows.

Over the last three months, when Treasury yields spiked higher, JPMorgan and Wells Fargo shares lost -0.3% and -6.2%, lagging the S&P 500 index’s +4.2% gain. We should keep in mind, however, that estimates for JPMorgan modestly increased, while those for Wells Fargo largely remained stable over this three-month period. Q3 estimates for the Finance sector as a whole increased since the start of the period.

Higher interest rates are generally seen as beneficial for these banks, but spiking yields of the type we have been experiencing are negative for these banks from several angles, ranging from causing paper losses at their available-for-sale bond portfolios to squeezed net interest margins through surging deposit betas and generally negative effects on credit demand and credit quality.

Trading volumes have remained very strong in recent quarters, but mid-quarter updates from management teams suggest that they will be below the levels seen in the preceding period. Negative developments in the treasury bond market have also clouded the outlook for deal flow, with several high-profile IPOs delayed as a result. It will be interesting to see how management teams, particularly JPMorgan’s leadership, will describe the operating environment on their earnings call next week.

For the sector as a whole, Q3 earnings are expected to increase by +3.4% from the same period last year on +6.3% higher revenues, which would follow the sector’s +22.4% earnings growth on +13.2% higher revenues in the preceding period.

The earnings big picture

The chart below shows S&P 500 expectations for 2026 Q3 in terms of what was achieved in the preceding four periods and what is currently expected for the following three quarters.

We have been showing here how Q3 estimates moved higher since the quarter got underway. Below, we show how estimates for the last quarter of the year have evolved in recent weeks.

The chart below shows the overall earnings picture for the S&P 500 index on an annual basis.

As is the case with estimates for 2026 Q4, estimates for full-year 2027 are also moving higher, as the chart below shows.

Since the beginning of July, estimates for 2027 have increased for 10 of the 16 Zacks sectors, with Tech, Energy, Finance, and Industrials leading the way.

We will see how this revisions trend evolves as companies report Q3 results and share updates on developments in their businesses.