Bank Earnings Season Kicks Off in Style: Why Have Wall Street Banks Won Back Market Favor?

July 14, 2026 (Beijing time), the U.S. stock earnings season kicked off with a rare “collective beat of expectations.” JPMorgan, Goldman Sachs, Citigroup, and Bank of America released their second-quarter reports on the same day. Not only did all four major banks exceed Wall Street expectations across revenue and net profit, but they also set new historical records in multiple metrics. Against a backdrop where there is still disagreement in the market about the macroeconomic outlook, these results send a clear signal—Wall Street banks are regaining market favor.

Collective beats: a set of record-breaking numbers

JPMorgan’s second-quarter net profit came in at $21.16B, up 41% year over year, setting the highest quarterly net profit record in U.S. banking history. Total revenue under management’s reporting basis was $58 billion, up 27%. After excluding a one-time gain of $4.6 billion from the sale of Visa equity, net profit was $16.9 billion, earnings per share (EPS) were $6.14, and return on tangible common equity (ROTCE) reached 23%.

Goldman Sachs’ performance was equally impressive. Second-quarter net revenues were $20.34 billion, up 39% year over year, setting a record high in the firm’s history; net profit was $6.63 billion, up 78% year over year; diluted EPS was $20.98, nearly double the $10.91 from the same period last year. This result significantly beat analysts’ expectations of $14.48 per share. Annualized return on equity (ROE) was 23.5%.

Citigroup’s second-quarter revenue reached $24.77 billion, up 14% year over year, setting a new quarterly revenue high in a decade; net profit was $5.83B, up 45%; and EPS was $3.15, well above analysts’ expectations of $2.73.

Bank of America also delivered a strong set of results. Second-quarter net profit was $9.1 billion, up 27%; total revenue was $31.6 billion, up 15%; and diluted EPS was $1.21, up about 36%, exceeding analysts’ expectation of $1.13. CEO Moynihan described it as “one of the strongest quarters the company has ever had.”

The five largest banks (including Wells Fargo) all delivered beats on the same day, which is extremely rare in Wall Street’s earnings history.

Trading business: the biggest winner in a high-volatility environment

The first major driver behind the collective beats in bank earnings came from the explosive growth of trading business in a highly volatile market environment.

Since 2026, global markets have faced multiple overlapping uncertainties. Tensions in the Middle East have continued to escalate, and events such as U.S.-Iran negotiations repeatedly disrupted market expectations. At the same time, investment enthusiasm driven by the AI industry transformation has boosted market activity from another dimension. The combined effect has kept market volatility at elevated levels, with the S&P 500 posting its best single-quarter return in six years in the second quarter.

For banks’ trading divisions, a high-volatility environment brings a double tailwind: higher customer trading frequency and wider spread-related earnings. This logic has been fully validated by specific data.

Goldman’s Global Banking and Markets segment this quarter delivered net revenues of $15.52 billion, up 53%, accounting for more than three-quarters of the firm’s total net revenues. Stock trading revenue was $7.42 billion, up 72%, setting the highest historical record for a single bank’s stock trading revenue on Wall Street. Just in these three months, stock trading revenue already exceeded the total of all four quarters of Goldman’s 2019 full-year results. By structure, equity brokerage contributed $4.16B, up 60%, mainly driven by the explosive growth in derivatives and cash equity trading. Equity financing contributed $3.26B, up 91% year over year; its core driver was the significant expansion of institutional brokerage. Revenue from fixed income, currencies, and commodities (FICC) was $4.59 billion, up 32%.

JPMorgan’s trading business also hit a new high. Stock trading revenue rose 86% year over year to $6.03 billion. Not only did it exceed all analysts’ expectations, it also pushed total trading revenue to a record $12.1 billion. Revenue for the corporate and investment bank segment rose 27% year over year, and market-related revenues surged 35%.

Bank of America’s sales and trading segment was also strong. Total revenue for the quarter jumped 34% to $7.1 billion, setting a record high. Stock trading revenue surged 70% to $3.6 billion. Revenue from fixed income, FX, and commodities trading grew nearly 9% to $3.5 billion. Moynihan had previously only expected trading revenue to grow by about 15%, and the actual performance far exceeded the company’s expectations.

Citigroup’s stock trading business revenue surged 45% to $2.3 billion, also setting a record high for the company.

Analysts had previously expected total trading revenue for the five major banks to be close to $39 billion in the second quarter. Based on the disclosed figures, just Goldman Sachs and JPMorgan combined already came close to $20 billion in trading revenue.

Investment banking rebound: the dual engines of IPOs and M&A

Besides trading, a strong rebound in investment banking is another main growth theme for the second quarter.

In the first half of 2026, global investment banking revenue totaled $61.4 billion, up 24% year over year. The flagship event was SpaceX listing on Nasdaq in June 2026, raising more than $80B and setting the largest IPO in U.S. stock market history. Goldman Sachs, as one of the joint bookrunners, was among the biggest beneficiaries. Bank of America Securities served as joint bookrunner for SpaceX’s IPO. This historic listing greatly boosted the U.S. IPO market.

In M&A, “mega deals” with deal values exceeding $10 billion increased sharply in the first half of 2026, driving global M&A transaction volumes to a new record high for the same period. Goldman Sachs, as financial adviser, had announced total M&A transaction values exceeding $1 trillion, setting the fastest deal pace for any investment bank in the same period.

Looking at performance by industry: Goldman’s investment banking business revenue rose 55% year over year to $3.4 billion, the highest quarterly record since 2021. Equity underwriting revenue jumped 130% year over year, while bond underwriting revenue increased 75%. JPMorgan’s investment banking business revenue was $3.9 billion, up 45%. Citigroup’s investment banking revenue grew 44% year over year to $1.55 billion. Bank of America’s investment banking fee total revenue rose 50% to $2.1 billion, with M&A advisory fees surging nearly 68% to $558 million.

Argus Research, Director of Financial Services Research, commented: “A capital expenditure supercycle driven by AI benefits stock issuance, M&A activity, and debt financing, while geopolitical volatility broadly boosts trading across various asset classes. Global M&A deal value announced in the first half already reached $2.5 trillion, and this will be a dividend that continues to pay out.”

Interest-rate environment: shift from rate-cut expectations to rate-hike expectations

The third dimension behind banks’ earnings recovery comes from the marginal change in the interest-rate environment.

The FOMC Economic Projections Summary released in June 2026 showed that the committee’s median expectation for the 2026 policy rate had been revised from the March “rate cuts” to “at least one rate hike.” This hawkish shift ended the guidance path that had pointed to 2026 rate cuts three times in a row since September 2025. The Fed also lowered its 2026 GDP growth forecast from 2.4% to 2.2%, while keeping its unemployment rate outlook near 4.3%.

The reappearance of rate-hike expectations provides structural support for banks’ net interest margins. After the rate-cut cycle of 2024 to 2025, lending rates at banks have remained elevated, with no obvious contraction in credit demand. Leading banks continue to generate net interest income supported by low-cost deposits. Bank of America’s net interest income in the second quarter rose 9% year over year to about $16.2 billion, better than the market’s expected 8.5% increase. Average loans and leases rose about 1% year over year to $321 billion. JPMorgan’s net interest income was $25.6 billion, up 10%. Goldman’s net interest income grew 27% year over year to $3.95 billion.

The market’s repricing of the interest-rate path is also changing investors’ expectations for the durability of banks’ earnings. The longer duration that a high-interest-rate environment may persist than previously assumed provides a longer support window for interest income.

Valuation repair: the repricing logic for the financial sector

Driven by a major improvement in earnings, Wall Street bank stocks are going through a significant valuation repair.

In terms of valuation levels, large bank stocks still trade at a notable discount relative to tech stocks. JPMorgan’s forward P/E is about 15x, while Bank of America is just above 13x. By contrast, most tech stocks trade at clearly higher valuation premiums. This valuation gap creates direct attractiveness for capital in the current market environment.

In terms of market performance, the share prices of Goldman Sachs, Morgan Stanley, and Citigroup have all doubled or more over the past 24 months. While JPMorgan and Bank of America operate alongside large-scale commercial banking businesses, their gains have also consistently outperformed the S&P 500 index. On July 14, the day the earnings reports were released, Goldman rose more than 8%, while JPMorgan and Bank of America both rose more than 2%, with each hitting a record high.

Several institutions raised their target prices for bank stocks after the earnings season. Wells Fargo raised its Bank of America target price from $67 to $69. JPMorgan raised its target from $360 to $375, and Goldman raised its target from $1,195 to $1,325. Barclays raised its JPMorgan target price from $391 to $420 and Goldman’s from $1,048 to $1,245.

It’s also worth noting that this rally in the banking sector is deeply linked to the AI wave itself. The AI boom has driven heavier market trading volumes and a surge in capital raising, directly creating incremental revenue for banks’ trading and underwriting businesses. Some market analysis has called large bank stocks “pure-play AI concept stocks”—not because they directly do AI business, but because AI-driven market activity is one of the key catalysts behind their earnings surge.

From a capital rotation perspective, concerns about investors overpaying for the valuation of AI tech stocks are increasing, and some funds have started rotating toward financial stocks with more attractive valuations. The Roundhill Magnificent Seven ETF tracking seven major tech giants fell nearly 4% over the same period. Franklin Templeton Research said: in the first half of 2026, the S&P 500 rose by nearly 7%, but forward P/E multiples actually declined, indicating that this rally was driven by earnings rather than valuation expansion, and the firm prefers the financial sector in the second half.

Conclusion

Wall Street banks’ collective beat in the second quarter of 2026 was not an accidental earnings spike, but the result of multiple structural forces resonating together. The high-volatility market environment provided substantial incremental income for trading businesses; the rebound in IPO and M&A activity drove a strong recovery in investment banking; and the hawkish shift in the interest-rate environment provided continued support for net interest income. Taken together, these three factors form a complete logical chain for banks’ earnings repair.

From a more macro perspective, the valuation repair in the banking sector reflects the market’s repricing of financial industry profit models—under the combined influence of AI-driven market activity and geopolitics-driven volatility, Wall Street banks’ trading and investment banking businesses are showing stronger earnings resilience than expected. Compared with the valuation discounts of tech stocks, this also provides real room for capital rotation.

Of course, risks remain. Changes in the geopolitical situation, further adjustments to the interest-rate path, and a potential decline in market volatility could all affect the sustainability of bank earnings. But based on the picture presented in the current earnings reports, Wall Street banks are using solid numbers to win back market favor.

FAQ

Q: Why did Wall Street banks’ 2026 Q2 earnings collectively beat expectations?

Mainly driven by three factors: first, a high-volatility market environment boosted trading revenue—Goldman’s stock trading revenue surged 72% year over year, while JPMorgan’s rose 86%; second, the rebound in IPO and M&A activity drove an investment-banking rebound, with standout events such as SpaceX’s listing contributing significantly; third, the interest-rate environment shifted from rate-cut expectations to rate-hike expectations, supporting net interest margins’ resilience.

Q: What are the current valuation levels of bank stocks?

Large bank stocks still trade at a notable valuation discount relative to tech stocks. JPMorgan’s forward P/E is around 15x, Bank of America’s around 13x, while most tech stocks have clearly higher P/E ratios. This valuation gap, together with a major improvement in earnings, forms the underlying logic for capital rotating from the tech sector to the financial sector.

Q: How is the AI wave related to the rise in bank stocks?

The AI boom affects bank stocks through two channels: first, it increases overall market trading volume and volatility, directly benefiting banks’ trading divisions’ revenue; second, it drives tech companies’ IPOs and financing activities, creating underwriting and advisory income for investment banking. Over the past 24 months, several bank stocks have doubled in price, and the market views them as indirect beneficiaries of the AI wave.

Q: How does Fed interest-rate policy affect bank earnings?

Rate hikes or a high-rate environment benefit banks by expanding net interest margins—the difference between loan rates and deposit rates. The Fed’s dot plot released in June 2026 showed that the median policy-rate expectation was revised from “rate cuts” to “at least one rate hike,” and this hawkish shift extends the support cycle for banks’ net interest income.

Q: Is there still room for upside for the bank sector in the second half?

After the Q2 earnings season, multiple institutions raised their target prices for bank stocks. Wells Fargo, Barclays, and others raised their targets for JPMorgan, Goldman Sachs, and Bank of America. The institutions believe that in an earnings-driven rally, the financial sector’s relative valuation advantage may continue to attract capital rotation, but investors should watch uncertainties related to geopolitics and interest-rate policy.