Major banks are stepping into the spotlight this week to reveal their latest corporate performance, offering a key test of strength after five straight weeks of market declines. Investors are looking for evidence that rising interest income can offset higher funding costs and growing economic pressures. The US banking sector ETF posted five consecutive weeks of losses, and investors are wondering whether the results and outlook will be strong enough to reverse the trend.
Rising interest rates can boost banks’ income from loans, but they also increase the cost of retaining deposits, reduce the market value of existing bond holdings and put pressure on borrowers, as consumers and businesses are struggling with heavier debt payments. The US regional banks face particular scrutiny. Analysts expect modest loan growth, slightly wider net interest margins and broadly stable credit quality. Investors will watch whether lending growth translates into stronger profits or is offset by more expensive deposits. Losses on bond portfolios need not become cash losses if banks hold the securities to maturity. However, they can weigh on shareholder capital and limit appetite for share buybacks.
An unusually strong second quarter sets a high benchmark for third-quarter trading revenue. JPMorgan expects strong year-on-year growth in trading and investment banking fees. Bank of America anticipates broadly flat trading revenue and lower deal fees, while Goldman Sachs has pointed to strong equities trading, softer fixed-income activity and higher costs. September’s market volatility may have supported trading activity while discouraging companies from completing deals. Expenses will therefore matter alongside revenue: stronger business volumes offer limited benefit if compensation and technology spending absorb the gains.
Investors are waiting with great interest for the banks’ earnings results, as according to the latest etoro Retail Investor Beat survey, 63% at the global level (and 64% of Romanian) retail investors own stocks in this sector. Also, the financial services sector is the second one in which global investors are more likely to increase their investments (12%), after technology (20%). For the Romanian investors, the situation is similar, but financial services are sharing the second place together with energy (15% each).
Due to the current geopolitical and economic global situation, this earnings season, the outlook may prove more important than headline results. Brent futures rose 34.4% in the third quarter to around $98, while the 10-year US Treasury yield increased to 5.3%, raising energy and financing costs. Loan demand, credit-card delinquencies and executives’ comments on households and businesses could reveal whether those pressures are spreading.
For now, expectations are not at a high point for the sector. SPDR S&P Bank ETF has fallen for five consecutive weeks, losing 6.8% in the third quarter. At $63.10, it trades around 12% below its August record high of $71.90 and beneath its 50-week moving average. The sell-off comes as analysts expect S&P 500 profits to rise about 30% year-on-year, setting a demanding benchmark for earnings season. For bank shares, a recovery above the ETF’s 50-week moving average could support sentiment. But any rebound will depend on banks demonstrating resilient margins, controlled costs and manageable credit losses, not simply beating quarterly forecasts.
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Notes to editors
Bogdan Maioreanu, etoro analyst and markets commentator, has over 20 years of experience in financial services and investments and a strong background in journalism. He held different Corporate Banking management positions in both Raiffeisen Bank and OTP Bank, before moving to business consultancy roles working for IBM Romania, among others. Bogdan is an Executive MBA from Asebuss and Washington University.
