US bank earnings: What they mean for markets

US blue chip indices are poised for a lower open later today, as chip stocks continue to struggle and the market digests a mixed bag of bank earnings. The focus should have been on Wall Street banks, however, chip stocks are stealing the limelight with heavy losses in the pre-market for Micron, SanDisk and even Nvidia. This is growing into a major theme for markets as we move through this week. 

Mixed bag of bank earnings 

The Nasdaq is set to open down 0.7% and the S&P 500 is expected to also open in negative territory to the tune of 0.1%. Major bank earnings have had a mixed impact on pre-market trading. JP Morgan has fluctuated between losses and gains after headline misses for earnings and revenue for Q3. Shares in Goldman Sachs are jumping 3% after strong trading revenue, particularly in equities, and Citi shares are mostly flat even though Citi traders benefitted from the recent spate of bond market volatility, and posted their best Fixed Income trading revenue for Q3 in more than a decade. 

Rising bond yields a big future problem for the banks 

Although none of the major banks reported any strains in the economy, such as rising loan losses or credit problems, the flattening in the US yield curve, with long end yields rising at a faster pace than short term yields, is typically a sign that credit risks will rise in the future. Investors tend to price this in ahead of time, which is why US banks with large retail units like JP Morgan and Citi are struggling on Tuesday. Although their results were solid today, it’s tomorrow that investors are fearful of. 

JP Morgan’s earnings reports also contained plenty of good news. It posted a better than expected forecast for net interest income for 2026 as a whole, it now expects NII to be $106.2bn, up from the $105.5bn it expected in June. However, it is underperforming Goldman Sachs in pre market trading. 

JP Morgan offers a less saccharin sweetener for investors 

Another reason why investors are turned off by JP Morgan’s results is its dividend. It increased the dividend by the lowest of the major Wall Street banks. The 10% increase compares with an 11% increase for both Goldman Sachs and Wells Fargo, and an 11.6% increase for Citi. 

Stocks over fixed income for banks trading desks 

Although revenue and earnings were lower than expected for JP Morgan, profit still rose. Investors may have been disappointed by the fixed income trading miss, however, trading revenue still rose by 15% and stock traders experienced their best third quarter on record with a 49% YoY jump in revenue to $4.95bn. 

Investment banking fees were $3bn, in line with expectations, and M&A advisory fees managed to beat estimates even in a challenging environment. The JP Morgan CEO said that investment banking fee revenue slowed down in September, which also soured the mood for investors although the stock is still on track for a near 1% gain when the market opens. 

Bank earnings do not suggest consumers are struggling with higher interest rates 

Overall, Wall Street bank earnings do not flash any warning signs about the strength of the US economy. The focus was also on the bank’s credit business unit. Here, the news was strong. Provision for credit losses was 19% lower than a year ago at $2.74bn, net charge-offs was $2.2bn, down more than $300mn from a year ago, and net reserves rose by $539mn. These figures suggest a bank with low levels of bad credit and a robust financial position to insulate it from any issues that may occur in the future. 

Overall, bank earnings suggest that the US economy is in good health and is generally riding the surge in bond yields, and the increase in US interest rates well. 

The market impact 

US banks are not moving in a single block on the back of these earnings reports and instead are being driven by idiosyncratic factors. We expect this to continue. On an index level, the chip stock sell off is the main story today, which is likely to continue to weigh on the Nasdaq 100 and the S&P 500. However, bank earnings could boost the Russell 2000, which is more closely aligned with the US economy, rather than the AI trade.