US banks could face a bumpy, but positive ride. Four factors
US stocks are pulling back as markets digest Trump’s latest policy demands ahead of the midterms — even as inflation cools. I break down why banks may face near-term volatility, but still offer upside once the dust settles.
From YouTube
Short term pull back or pause could be on the cards?
The S&P 500 has pulled back from record highs, despite core US inflation falling more than expected. So what’s driving the move? Traders and investors are assessing Donald Trump’s latest barrage of demands ahead of this year’s US midterm elections, and what they could mean for corporate profits.
As a result, investors are taking profits while they wait to see which demands may stick. At the same time, markets want clear evidence from upcoming US earnings reports that companies can withstand these policy pressures.
What markets are assessing now?
- Credit card rate cap. Trump wants a one-year cap on credit card interest rates at 10%. This rattled bank and payment stocks. $Visa (V.US)$ fell 4.5%. $Block (XYZ.US)$ dropped 4.3%
- Tech & AI cost pressure. Trump is calling on AI and tech firms to not pass higher data-centre energy costs on to consumers. He wants companies to “pay their own way” so rising electricity bills aren’t pushed onto Americans. That pressure hit tech stocks hard overnight: $Salesforce (CRM.US)$ fell 7%. Following were $Adobe (ADBE.US)$ and $Super Micro Computer (SMCI.US)$. $Microsoft (MSFT.US)$ was also among the biggest large-cap fallers after pledging to limit consumer cost impacts
What you need to know
Volatility remains low for now, but it is likely to pick up — similar to what we saw 6–7 years ago during Trump’s first term. If history repeats, it can take a few days or even a week for markets to digest the headlines and stabilise.
Why US banks could face a bumpy, but ultimately positive ride. Four factors
So far this month, financials are the only major GICS sector in the red, down more than 1%, as institutional investors brace for a bumpy quarter.
That’s notable given banking heavyweights — $JPMorgan (JPM.US)$, $Bank of America (BAC.US)$, $Wells Fargo & Co (WFC.US)$, and $Morgan Stanley (MS.US)$ — had been trading near record or 52-week highs, after markets positioned for deregulation, tax cuts, and stronger trading activity around the midterm cycle.
Those expectations are now being tested.
1. Bank valuations are being tested
Banks don’t move in straight lines. After being last month’s best-performing sector, US bank shares are now seeing profit-taking as valuations are questioned.
Trump’s proposed one-year 10% credit-card rate cap, starting January 20, has forced investors to reassess near-term risks.
JPMorgan Chase warned the policy would “radically” change its business model, saying it would be “very bad for consumers and very bad for the economy.”
While the policy sounds consumer-friendly, it could restrict credit availability, reduce bank profitability, and ultimately hurt consumers — explaining why bank valuations are being reassessed in the short term.
That said, the outlook into 2026 remains constructive:
– US banks are expected to deliver ~6.4% earnings growth next year and ~8% the year after
– Australian banks, by comparison, are expected to grow closer to 6% next year and 4% the year after
In the short term, the market is resetting expectations — in other words, an adjustment.
2. Medium-term tailwinds remain intact
Capital markets activity is expected to improve following three US rate cuts, alongside potential tax relief, deregulation, and a pickup in M&A and IPOs — all supportive for large banks over time.
3. Trading activity and the wealth effect
Strong trading conditions and the wealth effect — rising asset prices encouraging more investing and spending — continue to underpin earnings across trading and wealth divisions.
4. Midterm election dynamics
Historically, midterm election years are associated with higher trading volumes, which tends to benefit large, diversified US banks.
The takeaway for banks. Trade or invest?
If you’re looking to add banks to your portfolio — and you might want to — be aware that institutions are currently taking profits.
It may pay to wait for the dust to settle, as we could see a pullback or consolidation over the coming days or week.
That said, history shows big US banks tend to bounce back once uncertainty clears, leaving the medium-term outlook constructive.
Banks to watch next
– Bank of America, Citigroup, Wells Fargo — report Wednesday
– Goldman Sachs, Morgan Stanley — report Thursday
Investments to Watch
Wells Fargo
$Wells Fargo & Co (WFC.US)$ reports before the US market opens tonight, alongside Citi and Bank of America.
– Shares dipped 1.5% overnight amid credit-card regulation concerns
– Stock rose 33% last year and is up 9.5% this year
– Expected Q4 EPS: US$1.67 on US$21.7bn revenue (+17% YoY)
– Analysts have been lifting estimates since October
– Barclays reiterates a ‘buy’
– Price targets: $100.68–$103 (vs current US$93.56)
Intel
$Intel (INTC.US)$ shares surged 7.3% overnight, taking 2026 gains to 28%, after rising roughly 100% last year.
– KeyBanc upgraded Intel to ‘buy’
– Lifted price target to US$60 (from US$47)
– Upgrade reflects sold-out server GPUs (similar to AMD)
– Intel is tipped to overtake Samsung in advanced manufacturing, ranking second behind TSMC
Consensus ratings remain mixed, with some warning of a pullback — but continued upgrades could shift sentiment further.
Imdex
$Imdex Ltd (IMD.AU)$ shares jumped 6.8% yesterday to a new record high after Citigroup highlighted solid near-term growth.
– Most analysts rate the stock a ‘buy’
– Shares are up 15% this year, after a 62% gain last year
– Global client base across all major commodities, from the Americas to Africa
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
Read more
Comment
Sign in to post a comment
Jessica Amir
Moomoo Market Strategist
moomoo, market strategist.
Seen/heard on Fox News Business, ABC, SBS, Reuters wires.
Investor/Trader.
9837
Followers
20
Following
23K
Visitors
Follow