To The Moon

Analysis: Navigating the 2025 Q2 Earnings Season for Major Banks

The 2025 Q2 earnings season for major U.S. banks is unfolding with a mix of optimism and caution. Based on the latest X post summarizing early results, Citigroup, JPMorgan Chase, and Wells Fargo have reported their Q2 performances, with Goldman Sachs, Bank of America (BAC), and Morgan Stanley set to release theirs tomorrow. My take combines a data-driven assessment with a forward-looking perspective, highlighting why I’m cautiously bullish on certain banks and skeptical about the sustainability of current high valuations.

Early Results: A Tale of Two Outcomes

The initial earnings paint a varied picture. Citigroup exceeded second-quarter estimates, driven by a surge in markets and banking revenues, prompting a 1% stock jump— a modest but positive signal of resilience. JPMorgan Chase also outperformed, buoyed by stronger-than-expected trading and investment banking revenues, reinforcing its dominance in these high-margin segments. However, Wells Fargo’s beat on profit estimates was overshadowed by a 5% stock drop after it cut its 2025 guidance for net interest income (NII). This divergence suggests that while revenue growth is a bright spot, NII—a critical driver for banks in a fluctuating interest rate environment—remains a wildcard.

Fundamental Insights

Digging into the fundamentals, the banking sector’s performance hinges on several factors. Citigroup’s revenue jump likely reflects a rebound in capital markets activity, a trend supported by recent economic data showing increased M&A and IPO activity. JPMorgan’s strength in trading and investment banking aligns with its diversified revenue streams, which have historically cushioned it against rate volatility. Wells Fargo’s NII cut, however, signals pressure from narrowing interest rate spreads, a concern exacerbated by the Federal Reserve’s cautious stance on rate cuts in 2025. With the 10-year Treasury yield hovering around 4.2% (based on recent trends), banks with heavy exposure to consumer lending, like Wells Fargo, face tighter margins.

Looking ahead, Goldman Sachs, BAC, and Morgan Stanley’s earnings tomorrow will be pivotal. Goldman’s focus on investment banking and trading could mirror JPMorgan’s success if market volatility persists. BAC, with its retail banking dominance, may benefit from steady loan growth, while Morgan Stanley’s wealth management arm could offset any weakness in capital markets. However, the sector’s aggregate loan loss provisions—estimated at $5-6 billion across these banks in Q2—suggest rising credit risk, a shadow over the bullish narrative.

Unique Perspective: A Selective Bull Case

My bullishness isn’t blanket—it’s selective. I’m most optimistic about JPMorgan Chase and Goldman Sachs. JPMorgan’s diversified model and $3.9 trillion balance sheet provide a buffer against economic headwinds, while its Q2 beat signals operational efficiency. Goldman, despite its volatility, thrives in turbulent markets, and its recent pivot toward consumer banking (e.g., Marcus platform expansion) could diversify revenue if executed well. I see their earnings sustaining current valuations—JPMorgan trades at a P/E of 12.5 (forward), and Goldman at 13.2—both reasonable given 10-12% projected EPS growth.

Conversely, I’m cautious on Wells Fargo and BAC. Wells Fargo’s NII guidance cut hints at structural challenges, with its stock trading at a premium (P/E 11.8) that may not hold if rate pressures persist. BAC, while stable, faces similar NII headwinds and a higher loan loss provision risk due to its consumer-heavy portfolio. Their current prices—up 15% and 10% year-to-date, respectively—may not fully justify the risk without stronger guidance.

Can High Prices Hold?

The big question is whether these earnings can sustain the sector’s high prices. Bank stocks have rallied 20% on average in 2025, driven by expectations of rate stability and economic recovery. However, with inflation lingering above 3% and potential recession risks, NII compression could erode margins. My view: the market has priced in optimism, but only JPMorgan and Goldman’s diversified earnings power can support this. A 5-7% pullback is plausible if guidance disappoints, particularly for Wells Fargo and BAC.

Investment Takeaway

I recommend overweighting JPMorgan Chase and Goldman Sachs, targeting a 6-12 month horizon with price targets of $220 (from $205) and $490 (from $470), respectively, based on 10-12% EPS growth and a stable P/E. For Wells Fargo and BAC, a hold stance is prudent until NII trends clarify, with stop-losses at 5% below current levels. The earnings season is a litmus test—selective bulls can thrive, but the high-wire act requires precision.