By Jacob Sonenshine
Between a Truth Social post from President Donald Trump and fourth-quarter earnings, financial stocks have had a crazy week. A bunch appear poised to emerge as winners from the wreckage.
The State Street Financial Select Sector SPDR exchange-traded fund is down just over 3% this week. The first reason is that Trump posted that he wants to cap interest rates on credit cards at 10% for a year, which would slash rates roughly in half and devastate earnings for card issuers. That's unlikely to materialize, though select stocks have reacted anyway.
At the same time, the big U.S. banks have reported earnings that were fine, but not strong enough to boost the shares, which have risen by double-digit percentages over the past year. JPMorgan Chase stock fell Monday in response to its results, while Bank of America, Citigroup, and Wells Fargo all lost ground after reporting on Tuesday.
The silver lining is that the results indicate the banks are poised to deliver more growth in earnings. Profits at JPMorgan, Bank of America, Citigroup, and Wells Fargo mostly surpassed analysts' expectations on an adjusted basis. Revenue grew, aided by increasing loan demand and net interest income. Earnings rose, for the most part, as many of the banks reported low growth of operating expenses. Wells Fargo's non-interest expense declined from a year earlier, helping it achieve 27% growth in earnings per share.
That is the kind of picture the market hopes to see. There is plenty of reason to believe that the lenders' fourth-quarter performances are sustainable.
Lending revenue can increase as the economy grows, helped by interest-rate cuts by the Federal Reserve. And that, combined with leaner cost structures as the banks use artificial-intelligence tools to save money, can boost profit margins.
The banks will also continue to buy back stock, another factor pushing EPS higher. The consensus view among analysts tracked by FactSet is that aggregate EPS for the financial sector will grow 11% annually for the coming two years.
That can bring the stocks higher, especially because buyers look likely to come in to support them soon. The financials ETF trades at just over $53, but has seen consistent support at $52 since August. The price has been in a larger uptrend since late 2023, so as long as the economic picture continues to look promising, the market will assume profits will keep rising and bid the stocks higher.
Research by Mike Wilson, Morgan Stanley's chief U.S. equity strategist, points to financials as a winner. He took the companies among the top 1,500 U.S. stocks by market capitalization that ranked in the highest quartile in terms of increases to analysts' forecasts for their earnings in 2026, and pared that list by eliminating all those without ratings of Neutral or Overweight from Morgan Stanley analysts. The screen also ruled out any stocks not in sectors Wilson has recommended.
The screen, an effort to find companies in those sectors that have recently demonstrated strength in their business, yielded 20 financial names, the most for any sector covered by the screen.
A few names that made the cut are Citigroup, Goldman Sachs, Keycorp, Citizens Financial, Bank of New York Mellon, Ally Financial, Charles Schwab, State Street, Invesco, and Capital One.
The latter stock looks particularly interesting because it has fallen 8% this week in response to Trump's Truth Social post about credit-card rates. The point to remember is that capping rates would be difficult to pass through Congress, so the business can likely continue to hum along.
That spells a rebound for the stock. Take a look at some of these financials.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
January 14, 2026 13:13 ET (18:13 GMT)
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