Wall Street banks report kick off earnings season. What to watch
The financial sector performed strongly in the first week of 2026, with major US banks hitting new highs! How to position options ahead of earnings reports?
At the start of 2026 in the US stock market, major US banking giants hit new highs collectively, $JPMorgan (JPM.US)$ 、 $Bank of America (BAC.US)$ 、 $Wells Fargo & Co (WFC.US)$ 、 $Morgan Stanley (MS.US)$ 、 $Goldman Sachs (GS.US)$ 、 $Citigroup (C.US)$All hit new highs.
$KBW Nasdaq Bank Index (.BKX.US)$Up about 33% since the beginning of 2025, significantly outperforming the broader market.
Against the backdrop of sluggish global growth and increasing uncertainty, bank stocks are regarded as 'certainty assets' due to their stable earnings and sustainable dividends, leading to a revaluation. The unique business models and shareholder return mechanisms of US-listed banks make them offer both high returns and growth potential.
This article will analyze the key drivers behind the share price performance of major US-listed banks, while looking ahead to Q4 2025 earnings reports due this week, and explore options strategies before the earnings release to help investors seize opportunities.
Behind the surge in major US-listed banks: A combined result of macroeconomic environment, policy tailwinds, and internal industry transformation
Among Wall Street's major banks, $Goldman Sachs (GS.US)$The stock price has surged approximately 65% cumulatively since the beginning of 2025, $Citigroup (C.US)$ Cumulatively up about 76%, $Bank of America (BAC.US)$ Cumulatively up 30%, $JPMorgan (JPM.US)$ Cumulatively up 40%, $Wells Fargo & Co (WFC.US)$ Cumulatively up 39%, $Morgan Stanley (MS.US)$ Cumulatively up 51%.
Macroeconomic Environment and Monetary Policy: Stable Growth and Interest Rate Cut Benefits Support Industry Fundamentals
The US economy demonstrated strong momentum in the third quarter of 2025, with GDP growth reaching 4.3%, significantly exceeding market expectations.Although the fourth quarter may be affected by short-term factors, thanks to the implementation of tax cuts and the boom in artificial intelligence (AI) investments, most institutions predict that economic growth in 2026 will stabilize within the 2.0%-2.5% range. Morningstar's report points out that this overall stable macro environment provides solid ground for banking performance.
Meanwhile, the shift in the Federal Reserve’s monetary policy has become a key driver.The Federal Reserve cut interest rates three times consecutively over the last four months of 2025, with a cumulative rate cut of 75 basis points, bringing the benchmark interest rate down to a range of 3.5%-3.75%. The rate cuts directly reduced banks' cost of liabilities and stimulated corporate financing and M&A activities, significantly benefiting investment banking businesses such as bond underwriting and M&A advisory revenues.
Although interest rate cuts may compress some net interest margins, banks can achieve effective hedging by revaluing assets such as real estate and private equity held on the asset side to gain investment returns. The market generally expects that there is still room for interest rate cuts in the first half of 2026, which has prompted funds to flow from the bond market to high-dividend bank stocks, further boosting sector valuations.
Regulatory Easing and Business Recovery: Unlocking Capital Vitality and Driving Diversified Growth
The easing regulatory environment is the most direct industry catalyst at present.The 'bank-friendly' policies promoted by the Trump administration aim to reduce capital requirements for large banks. According to Jefferies, this move could release approximately $2.6 trillion in additional lending capacity for the U.S. banking sector; Goldman Sachs estimates it will bring $180 billion to $200 billion in additional capital. Regulatory easing not only enhances banks' ability to lend and expand but also strengthens their valuation advantage.
At the business level, diversified models have become the core of profit resilience.Leading banks like Goldman Sachs and Morgan Stanley, which have a high proportion of non-interest income, effectively hedge against credit cycle fluctuations. In 2025, the global M&A market strongly rebounded, with total transaction value surging to $4.5 trillion, a nearly 50% year-on-year increase, setting the second-highest record in history, directly driving up investment banking revenues. Meanwhile, companies' large-scale financing efforts to compete for AI infrastructure further increased loan demand and capital markets business income for banks.
2026: Yield Curve, Capital Markets, and Ongoing Regulatory Benefits to Drive Bank Stocks
Looking ahead to 2026, the performance of bank stocks is expected to be driven by several key factors:
A 'bull-steepening' yield curve lays the foundation for profitability.Recently, the U.S. Treasury market has shown a 'bull-steepening' trend, characterized by a rapid decline in short-term rates while long-term rates remain relatively stable. This is particularly beneficial for bank profitability because banks typically finance themselves with short-term liabilities but deploy assets in the form of long-term loans. An improved interest margin environment will directly strengthen their net interest income base.
The wave of corporate mergers and IPOs continues.Institutions such as Goldman Sachs predict that the fundamental drivers of M&A activity in 2026—such as abundant capital, the recovery of the IPO market, and companies' willingness to undergo strategic restructuring—will remain strong. Market expectations suggest that several tech giants, including OpenAI and SpaceX, may initiate public offerings, which would bring investment banks hundreds of millions of dollars in advisory and underwriting fees. PwC also noted that if the macro environment remains stable, 2026 could become 'the best IPO window in many years.'
Banking regulations are expected to continue easing.On December 2, 2025, Vice Chair of the Federal Reserve, Bowman, testified at a regulatory hearing of the U.S. Senate Banking Committee, outlining several key directions for American banking regulation in the near future: these may include reducing implicit capital requirements in stress tests, alleviating additional capital burdens on Global Systemically Important Banks (GSIBs), and implementing Basel III 'final rules' in a more relaxed manner.
Moreover, clearer regulations in areas like cryptocurrency could open up entirely new avenues for growth in the banking sector.
Earnings Preview: Major U.S. banks will release their Q4 2025 results next week.
This week,$Goldman Sachs (GS.US)$ 、 $Bank of America (BAC.US)$ 、 $Citigroup (C.US)$ 、 $JPMorgan (JPM.US)$ 、 $Morgan Stanley (MS.US)$ and $Wells Fargo & Co (WFC.US)$They will successively release their Q4 2025 earnings reports this week, which will be a critical juncture for assessing the sustainability of the rally.
JPMorgan will be the first to release its earnings report on January 13, followed by Bank of America, Wells Fargo & Co, and Citigroup on January 14. Goldman Sachs and Morgan Stanley will announce their results on January 15.
After the earnings releases, investors can focus on the following key metrics:
– Net Interest Income (NII):This is the core profitability driver for traditional retail banks. Previously, JPMorgan, Wells Fargo & Co, and Citi all exceeded expectations for their Net Interest Income (NII) in Q3 of 2025. After the Fed continued to cut interest rates in Q4, it is necessary to monitor how changes in the interest rate environment affect their net interest margins and loan demand.
– Credit Quality:Pay attention to changes in non-performing loan ratios and credit loss provisions, which directly reflect economic expectations and the bank's risk management capabilities. In Q4, the government shutdown may lead to slower economic growth, potentially reducing loan balances and slightly worsening write-offs. The continuation of the K-shaped economy in the U.S. could also lead to an increase in credit card delinquency rates and higher bad debt write-downs.
– Capital Position and Returns:Monitor regulatory capital adequacy ratios and shareholder return plans, such as dividends and stock buybacks, for the latest guidance, which impacts the bank’s stability and attractiveness to investors.
– Investment Banking Revenue:Includes fee income from M&A advisory, equity and debt underwriting, which directly reflects the activity level of capital markets.
– Trading Revenue:Focus on performance in areas like fixed income, foreign exchange, and commodities, which are closely tied to market volatility.
Specific Areas of Focus for Each Bank
– JPMorgan: Market focuses on sustainability of investment banking and trading businesses
$JPMorgan (JPM.US)$Earnings report will be released pre-market on January 13 Eastern Time,Institutions expect JPMorgan to achieve $46.245 billion in revenue for Q4 2025, an 8.13% year-over-year increase; expected earnings per share of $5.004, a 4.03% year-over-year increase.
JPMorgan's Q3 revenue and profit exceeded expectations mainly due to a 16% surge in investment banking income and record trading business performance. JPMorgan ranked first globally in investment banking fees and, driven by the recovery in ECM and M&A activities, has reconsolidated its position as the global leader in investment banking with an 8.7% market share, surpassing peers.
However, this recovery relies more on improved market conditions. Amid challenges from complex geopolitical conditions, investors will focus on whether the rebound in the company's investment banking business is sustainable. The record trading revenue was due to high volatility in Q3 capital markets; whether this performance can be sustained in Q4’s capital market environment remains uncertain.
– Bank of America: Market focuses on whether consulting revenue will continue to soar in Q4
$Bank of America (BAC.US)$Earnings report will be released pre-market on January 14 Eastern Time,Institutions expect $27.625 billion in revenue for Q4 2025, an 8.99% year-over-year increase; expected earnings per share of $0.96, a 16.71% year-over-year increase.
As the second-largest bank in the U.S., Bank of America saw strong Q3 earnings growth driven by record performances in investment banking and wealth management, alongside better-than-expected loan loss provisions. Q3 net profit rose to $7.7 billion, a 58% year-over-year increase. Benefiting from a booming M&A market in 2025, Bank of America enjoyed soaring consulting revenue, which investors will closely watch to see if it continues into Q4.
– Wells Fargo & Co: Market focuses on subsequent impacts after removal of asset cap
$Wells Fargo & Co (WFC.US)$Will release earnings report pre-market on January 14th Eastern Time.Institutional expectations for Wells Fargo & Co’s Q4 2025 revenue are $21.681 billion, a year-over-year increase of 6.39%; expected earnings per share of $1.667, reflecting a year-over-year increase of 16.57%.
Goldman Sachs and other banks’ Q3 2025 earnings surprises were mainly driven by strong investment banking operations, which is not a core business for Wells Fargo & Co. The better-than-expected Q3 results for Wells Fargo were primarily due to growth in consumer businesses and a decrease in credit loss provisions. Additionally, for the past seven years, Wells Fargo has been constrained by an 'asset cap,' a penalty for the fake accounts scandal and various issues under previous leadership.
The Federal Reserve lifted the asset cap in June 2025, and Wells Fargo immediately seized the opportunity, with total assets surpassing the $2 trillion mark for the first time in Q3 2025. In Q4, investors will focus on whether Wells Fargo can further expand after the removal of the asset cap and achieve long-term operational efficiency improvements.
– Citigroup: Market focuses on the effectiveness of the company's business transformation
$Citigroup (C.US)$Will release earnings report pre-market on January 14th.Institutional expectations for Citigroup’s Q4 2025 revenue are $20.516 billion, a year-over-year increase of 4.77%; expected earnings per share of $1.396, reflecting a year-over-year increase of 4.19%.
Citi’s Q3 saw record-breaking performances across all five business segments—services, markets, banking, wealth management, and U.S. personal banking—highlighting that Citi’s recent business restructuring and digital transformation investments are beginning to pay off. Benefiting from the continued recovery in M&A deal environments, investment banking fees grew by 17%.
Since taking office, Fraser has continuously implemented a strategy focusing on higher-margin or core-region businesses, exiting retail banking operations in lower-margin or non-core regions while concentrating on institutional services and wealth management where the bank holds competitive advantages. In Q4, investors will closely monitor further progress in Citi’s business transformation; this strategic shift led to increased expenses in Q4. Additionally, Citi’s credit quality was pressured in Q3 due to California wildfires, and the market will be watching for any rise in non-performing loans in Q4.
– Goldman Sachs: Market focuses on the effectiveness of the company’s strategic transformation and whether regulatory risks have improved
$Goldman Sachs (GS.US)$Will release earnings report before the market opens on January 15.Institutions expect Goldman Sachs to achieve revenue of $14.256 billion in Q4 2025, a year-over-year increase of 2.79%; expected earnings per share of $11.566, a year-over-year decrease of 3.21%.
Goldman Sachs' Q3 revenue hit a record high for the same period, driven by a surge in mergers and acquisitions, with investment banking revenue soaring 42%, significantly surpassing market expectations. Total assets under management rose to $3.45 trillion. Although Q3 investment banking surged, the sustainability in Q4 is questionable, and the market will continue to focus on changes in the backlog of investment banking orders and the impact of market conditions.
After strategic adjustments from 2022-2024, Goldman Sachs has exited its mass retail banking business 'Marcus' and refocused on Global Banking & Markets (GBM) and Asset & Wealth Management (AWM). The market will be watching the effectiveness of its strategic transformation, especially progress in asset and wealth management as well as digital assets/blockchain-related emerging businesses.
Additionally, Goldman Sachs' Q3 litigation and regulatory provisions reached $131 million, a significant increase from $41 million in the same period last year. Regulatory risks remain, and investors will be watching if these risks improve in Q4.
– Morgan Stanley: Market attention on whether the company can leverage regulatory tailwinds to deliver an earnings beat.
$Morgan Stanley (MS.US)$Will release earnings report before the market opens on January 15.Institutions expect Morgan Stanley to achieve revenue of $17.681 billion in Q4 2025, a year-over-year increase of 8.99%; expected earnings per share of $2.442, a year-over-year increase of 10.0%.
Morgan Stanley's Q3 performance exceeded expectations across the board, with equity trading revenue surging 35%. Additionally, driven by active IPOs and convertible bond issuance, investment banking revenue grew over 44% year-over-year. Since part of the investment banking growth depended on the concentrated completion of backlogged projects from the first half of the year, investors will be watching the progress of new projects in Q4.
Morgan Stanley's wealth management segment continued its strong performance in Q3. As of the end of Q3, total client assets in wealth management and investment management reached $8.9 trillion. Leveraging economies of scale, asset management fee revenue increased 12% year-over-year. Investors will focus on whether wealth management can continue to play a stabilizing role in Q4. Moreover, on the regulatory front, the Federal Reserve has agreed to reduce Morgan Stanley's Stress Capital Buffer (SCB) from 5.1% to 4.3%. In Q4, the company may leverage regulatory tailwinds to deliver an earnings beat.
Option Strategy Layout Before Earnings Reports
For option traders, earnings season is often accompanied by a spike in volatility. Currently, the implied volatility (IV) of US-listed options for the six major banks has risen to high levels; for instance, Morgan Stanley and Citi have IV percentiles above 70%. Therefore, selling put options may be more advantageous.
Moreover, as most banks' Q3 outperformance was primarily driven by surges in investment banking and trading businesses, but the sustainability of these businesses in Q4 is uncertain, it is recommended to adopt conservative bullish strategies.
1. Covered Call (holding bank shares + selling puts)
– Operation:Hold shares while selling call options on bank stocks.
– Purpose:By selling call options, you collect premiums, which act as "extra dividends" on your stock holdings. If the stock price is below the strike price at expiration, the option expires worthless, and you keep the premium. If the stock price is above the strike price, your shares may be called away at the strike price, but you still benefit from the collected premium and gains up to the strike price.
– Risks and Suitable Investors:Give up potential profits from significant stock price increases in exchange for limited downside protection provided by the premium. Suitable for investors who are neutral or mildly bullish on the market outlook.
2. Short Iron Condor: Selling Iron Condor Options
The Iron Condor strategy is suitable for more advanced options traders. For earnings season with neutral-to-mildly bullish expectations, the goal is to profit from IV crush (a decline in volatility post-earnings), making the sale of an Iron Condor appropriate.
– Operation:Involves four options (all with the same expiration date): selling one put option with a lower strike price + buying one put option with an even lower strike price + selling one call option with a higher strike price + buying one call option with an even higher strike price. The distance between these four strike prices is equal, and the two sold options are both slightly out-of-the-money.
– Profit:When the underlying asset's price at expiration is between the two sold strike prices, all options expire worthless, and the profit equals the initial net premium collected.
– Risk and suitability:In a directionless market, profits are generated by 'selling volatility' to benefit from time decay. Compared to naked option selling, risk is limited; however, since it involves four option contracts, transaction fees may erode profits. This strategy typically has a higher probability of success but limited single-trade profitability.
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Risk Warning
An option is a contract that grants the holder the right, but not the obligation, to buy or sell an asset at a fixed price on a specific date or at any time before that date. The price of an option is influenced by various factors, including the current price of the underlying asset, the strike price, the time to expiration, andimplied volatility。
implied volatilityreflects the market's expectation of volatility in the option over a future period. It is data derived inversely from the Black-Scholes option pricing model and is generally considered an indicator of market sentiment. When investors anticipate higher volatility, they may be more willing to pay a higher price for options to help hedge risks, thereby leading to a higherimplied volatility。
Traders and investors useimplied volatilityto evaluateoption pricesthe attractiveness, identify potential mispricing, and manage risk exposure.
Disclaimer
This content does not constitute any offer, solicitation, recommendation, opinion, or guarantee regarding securities, financial products, or tools. The risk of loss in trading options can be substantial. In certain circumstances, the losses you incur may exceed the initial margin amount deposited. Even if you set contingent orders, such as “stop-loss” or “limit” orders, they may not prevent losses. Market conditions may render such orders unexecutable. You may be required to deposit additional margin within a short period. If you fail to provide the required amount within the specified time, your open positions may be liquidated. However, you will remain responsible for any shortfall in your account resulting from such liquidation. Therefore, before engaging in trading, you should study and understand options and carefully consider whether such trading is suitable for you based on your financial situation and investment objectives. If you trade options, you should familiarize yourself with the procedures upon option exercise and expiration, as well as your rights and obligations upon option exercise and expiration.
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