Tariffs Dominate: How to Play Bank Earnings Season?

The Q1 2025 earnings season is here, with top U.S. banks ready to share their results. $JPMorgan Chase(JPM)$  , $Wells Fargo(WFC)$  , and $Morgan Stanley(MS)$   report this Friday, April 11. $Goldman Sachs (GS.US)$ follows on Monday, April 14, with $Bank of America (BAC.US)$ and $Citigroup (C.US)$ wrapping up on Tuesday.

Bank Stocks Wobble Amid Tariff Jitters

Bank stocks have been on a tear in recent months, riding hopes of lighter regulation under a Trump administration. But macroeconomic clouds have gathered. The $KBW Nasdaq Bank Index (.BKX.US)$ has slid over 25% from its early February peak. 

Last week, fears of Trump's tariff plans triggered a sharp sell-off Thursday and Friday, fanning recession worries. Monday brought a brief bounce, but Tuesday's early gains fizzled, with most banks closing lower despite a late rally.

Strong Q1 Earnings on Deck

Despite the turbulence, the financial sector is poised for a solid Q1. FactSet forecasts 2.3% year-over-year profit growth, fifth among S&P 500 sectors. Banks are expected to shine with 5% earnings growth—behind consumer finance (23%) and capital markets (10%) but well ahead of insurance, which is set to drop 15%.

Wall Street’s projections for key players:

– $JPMorgan (JPM.US)$: $44.05B revenue (+5.1%), $4.64 EPS (+4.6%)

– $Morgan Stanley (MS.US)$: $16.61B revenue (+9.7%), $2.21 EPS (+9.3%)

– $Bank of America (BAC.US)$: $26.93B revenue (+4.3%), $0.82 EPS (+7.7%)

– $Goldman Sachs (GS.US)$: $14.84B revenue (+4.4%), $12.39 EPS (+7.0%)

– $Citigroup (C.US)$: $21.32B revenue (+1.0%), $1.86 EPS (+17.5%)

Tariffs Loom Large: Key Themes to Watch

Analysts are turning cautious, broadly downgrading bank stock ratings in recent weeks. This earnings season, investors will be laser-focused on every comment about the economy, growth projections, and tariff-related risks.

JPMorgan analyst Vivek Juneja, in a report last Thursday, cut profit forecasts for U.S. banks, warning, “Tariffs announcement will increase concerns about the impact on the economy and pressure markets overall … Banks would be impacted by these with fallout on investment banking, consumer spending, and loan growth plus wealth management.” 

Morgan Stanley’s Betsy Grasek downgraded large and mid-cap bank stocks to “in line” from “attractive,” citing recession risks and a slower trade recovery. 

Raymond James' David Long slashed price targets for 18 regional banks, pointing to an expected economic slowdown. 

KBW's Christopher McGratty noted that bank valuations now resemble "late-cycle" levels rather than a bullish outlook, with loan growth likely to be revised to the lower end of prior ranges.

Navigating Earnings Volatility with Options

The options market is pricing in turbulence. Bank stocks typically see tame earnings moves—under 5%—but implied volatility is spiking: $Goldman Sachs (GS.US)$ at 10.8%, $Bank of America (BAC.US)$ at 9.9%, $Morgan Stanley (MS.US)$ at 8.6%, and $JPMorgan (JPM.US)$ at 7.1%. For perspective, JPMorgan’s stock stayed within 5% in 8 of its last 11 earnings. Pricier options signal market nerves.

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