Earnings season usually trickles out with a slow burn, but this week the stock market is pulling off something we rarely see. Five of the biggest financial institutions in the country are dumping their second-quarter report cards onto the public all on the same morning.
Wall Street is calling it Super Tuesday. JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, and Goldman Sachs are all releasing their numbers before the opening bell.
If you want to know where the economy is actually heading, you can ignore the politicians and the talking heads. Watch the big banks. Their data shows you exactly how regular people are handling their debts, whether corporations are borrowing money to expand, and if the wealthy are betting big on the markets.
The Cheap Bank Stock Trap
Bank stocks have been on a tear lately. The KBW Nasdaq Bank Index has climbed 14.7% recently, actually beating out the S&P 500's 10.8% return over the same period. Even with that run, these stocks look incredibly cheap on paper.
The sector trades at a massive discount compared to the broader market. The forward price-to-earnings ratio for the KBW Bank Index sits around 12.4. Compare that to the S&P 500, which is trading at a steep forward P/E of 20.4.
But don't buy into the value trap just yet. Banks look cheap because their risk profile has shifted. We've watched net interest margins—the profitable sweet spot between what banks earn on loans and what they pay out on deposits—get squeezed as interest rate expectations fluctuate.
What the Big Five Will Reveal
Each of these massive institutions tells a different story about the financial health of the country.
JPMorgan Chase remains the undisputed heavyweight. Wall Street analysts expect Jamie Dimon's firm to post earnings of $5.58 per share. Investors will look directly at their credit card delinquency rates to see if middle-class consumers are hitting a wall.
Bank of America is the classic retail banking bellwether. Analysts are looking for $1.13 per share. Pay attention to their deposit sticky-ness. If regular depositors are moving their cash out of basic savings accounts to chase higher yields in money market funds, it hurts BofA's bottom line.
Citigroup is the turnaround story. Jane Fraser has been restructuring the bank for what feels like eternity. The stock has surged nearly 19% recently because investors believe the bleeding has stopped. Analysts expect earnings of $2.74 per share. If they miss, the restructuring narrative falls apart.
Wells Fargo has underperformed its peers lately, dragging a loss of over 7% while others rallied. They need to show strength. Estimates sit at $1.72 per share. Look at their commercial real estate exposure, which has been a dark cloud over the firm.
Goldman Sachs is a pure bet on market enthusiasm. Wall Street expects a massive $14.47 per share. If Goldman knocks it out of the park, it means corporate dealmaking, initial public offerings, and mergers are surging back to life.
Spotting the Real Trends in the Data
When the press releases drop, ignore the headline profit numbers. Corporate accounting can manipulate those easily. Look at these two metrics instead.
Provisions for Credit Losses
This is the amount of money banks set aside because they think borrowers are going to default on their loans. If this number jumps significantly across all five banks, it's a clear signal that the consumer is cracking under the weight of prolonged high interest rates.
Investment Banking Fees
Corporate boardrooms have been cautious due to geopolitical tensions, including recent escalations involving Iran. Look closely at Goldman Sachs and Morgan Stanley—which reports the following morning—to see if advisory fees are returning. If companies are making deals again, it shows long-term confidence in economic growth.
How to Trade the Super Tuesday Fallout
Don't try to guess the earnings beat. Trading individual bank stocks ahead of an unprecedented five-way earnings drop is a casino gamble.
Look at the broader market reaction instead. If banks report stellar earnings but lower their future guidance because of consumer anxiety, the broader stock market will likely pull back from its near-record highs.
Check your exposure to consumer discretionary stocks. PepsiCo recently reported flat snack volumes and falling beverage sales in North America as consumers tightened budgets. If the big bank data confirms this consumer pullback on Super Tuesday, it's time to rotate money out of expensive retail and tech stocks and move into defensive sectors like healthcare or consumer staples. Keep an eye on Morgan Stanley and BlackRock when they report the next day to confirm if institutional capital is making the same defensive pivot.
This market update video from Reuters provides additional context on how macroeconomic events and early earnings results are shaping current investor sentiment.
