The largest U.S. banks are set to kick off earnings season, offering investors their first clear look at how rising Treasury yields are hitting the broader economy.
Analysts expect earnings at the biggest U.S. banks to rise by as much as 20% from a year earlier, though the backdrop remains complicated by surging long-term borrowing costs.
JPMorgan Chase (JPM), Goldman Sachs (GS), Citigroup (C), and Wells Fargo (WFC) are all scheduled to report on October 13, setting the tone for the season.
Morgan Stanley (MS) and Bank of America (BAC) follow one day later on October 14, rounding out the initial wave of major financial sector results.
The 30-year U.S. Treasury yield recently reached its highest level in 24 years, while the 10-year yield climbed above 5.3%, adding significant pressure to bank operations and valuations.
The KBW Bank Index has fallen 12% from its August peak, reflecting growing investor unease about how higher rates will affect profitability across the sector.
A Truist Securities survey underscores that shift in sentiment, with institutional expectations for bank outperformance collapsing from 82% in December to just 35%.
UBS bank analyst Erika Najarian linked bank stocks’ weakness directly to the spike in yields, warning that investors will need reassurances on multiple fronts heading into results.
Najarian noted that investors will need reassurances that the capital markets pipeline remains robust, loan growth is on track, and a rise in deposit costs is contained.
Rising yields create pressure on bank profits through multiple channels, most notably by squeezing net interest margins, which measure the difference between what banks earn on loans and pay on deposits.
As bond yields rise, deposit accounts face growing competition from Treasury bills, ultimately forcing banks to pay more for their primary source of funding to retain customers.
Surging bond yields also contributed to initial public offering cancellations late in September, raising fresh concerns about whether investment banking activity will recover in the months ahead.
Investors will scrutinize management guidance closely for any signals that higher rates are starting to meaningfully weaken credit demand across consumer and business lending markets.
Any indication that loan growth is slowing or that deposit cost pressures are accelerating could trigger a significant reassessment of valuations for major financial stocks heading into year-end.
