Wall Street is raising the bar after the largest U.S. banks' second-quarter earnings results showed generally solid credit health among borrowers, strong dealmaking activity, and blowout trading numbers.
Analysts increased their share price and profit expectations for Citigroup, Goldman Sachs, U.S. Bancorp, and other lenders in recent days as results rolled in and exceeded initial forecasts.
"Mega-banks benefit from mega-IPOs, mega-financings, and mega-mergers," Wells Fargo Securities analyst Mike Mayo wrote on July 15.
He upped estimates and price targets for five major banks that reported this past week -- Citi, JPMorgan Chase, Bank of America, Morgan Stanley, and Goldman -- either during or shortly before their reports were released. ( Wells reported better-than-expected results on Tuesday, but bank analysts refrain from covering their own firms.)
He expects several banks' shares to hit new highs. Mayo now sees Goldman's stock rising to $1,325 per share, up from $1,195, implying a 24% rally from where it closed on Friday.
Banks that run large trading businesses put up results that beat out competitors with smaller units. A volatile market in the second quarter drove banks' clients across investment firms to reposition themselves across stocks, currencies, and fixed-income products.
Morgan Stanley's trading revenue results in particular led Chris Kotowski, the longtime Oppenheimer & Co. bank analyst, to increase his 2027 earnings estimates by 5%. He kept his Underperform rating on the bank, however, as its stock trades at a historically high valuation and already "seems to us to price in continued ebullient trends."
Morgan Stanley's equity-trading revenue surged 69% from a year ago, while Goldman, Bank of America, and JPMorgan reported rises of 72%, 70%, and 86%, respectively.
Those firms "all stress that this is the pay-off of years of investment, and that is undoubtedly true," Kotowski wrote, "but it also feels like everyone was invited to the same party."
U.S. Bancorp, which reported earnings that topped expectations on Thursday, recently acquired the investment banking and trading firm BTIG as a way to better compete against those banks.
Shares of U.S. Bancorp, the sixth-largest bank in the country, rose to an all-time high -- the first such record in four years -- after its earnings report came out. Jefferies analyst David Chiaverini raised his core per-share earnings estimates for 2026 and 2027 and kept his Buy rating on the stock.
However, there were exceptions to Wall Street's largely positive tone.
Wells Fargo's earnings -- particularly its net interest margin, a key profitability measure -- underwhelmed the market, leading Bank of America analyst Ebrahim Poonawala to lift his 2026 per-share earnings expectation, but lower them to $7.90 from $7.98 for 2027.
Mayo wrote that the main debate among investors now is whether banks are seeing "peak capital markets," with such eye-watering numbers at the big Wall Street firms. He struck a note of caution.
"Big waves can cause big falls," he said, pointing to risks such as artificial intelligence spending not paying off as companies planned -- and a high bar to clear after banks' robust first half of 2026.
"Past big-wave cycles have ended in sharp falls and overinvestment," he said. "Even the best swells close out."
(END) Dow Jones Newswires
