The performance of banking stocks has been impressive of late, especially after better-than-expected second-quarter 2025 results. In the past three months, the KBW Nasdaq Bank Index, which tracks the 24 largest banks in the United States, rallied more than 18%, outpacing the S&P 500 Index’s 9% growth. In fact, last week, the index surpassed its previous record high.

A few of the country’s largest banks like JPMorgan (JPM Quick QuoteJPM - Free Report) , Goldman Sachs (GS Quick QuoteGS - Free Report) and Citigroup (C Quick QuoteC - Free Report) have performed impressively, gaining 13.2%, 23.4% and 26.2%, respectively, in the past three months.

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What’s Driving the Surge in Bank Stocks?

The primary reason behind the rally in U.S. bank stocks lately has been the dovish Fed commentary and banks’ strong fundamentals buoyed by the 2025 stress test results.

Late last month, in a speech in Jackson Hole, Federal Reserve chairman Jerome Powell signaled potential interest rate cuts as early as this month. Powell said, “the shifting balance of risks may warrant adjusting our policy stance.” This resulted in renewed investor optimism, especially for yield-sensitive financials.

While banks’ profitability suffers in the long run from narrower net interest margins if rate cuts go too deep; in the short term, a reduction in interest rates is bullish for banks because it sparks loan growth (by making borrowing cheaper), reduces defaults and fuels market activity. Thus, markets are pricing in a “soft landing,” boosting investor appetite for financials in the near term.

Moreover, this year’s stress tests confirmed that banks like JPMorgan, Goldman Sachs, and Citigroup remain well-capitalized and resilient even under severe economic scenarios. This has provided strong reassurance to investors about the financial system’s stability, giving banks the green light for dividends and share buybacks.

In addition to the above-mentioned factors, robust second-quarter results have been another driver for the bank stock rally recently. Banks’ earnings reports showed resilient profits this time, with net interest income (NII) staying strong even as rates remained unchanged. Supported by healthy consumer spending and corporate activities, most banks reported better-than-expected results.

How Are JPM, GS and Citigroup Positioned Currently?

JPMorgan: JPM, which is the largest global bank with assets worth more than $4.5 trillion, has a Zacks Rank #2 (Buy) at present. The bank leads the U.S. credit-card market. In 2024, it topped purchase volumes, and in the second quarter of this year, its sales volume (excluding corporate cards) grew 7% year over year.

Since JPMorgan’s balance sheet is highly asset-sensitive, a Fed rate cut will likely put downward pressure on its NII. Nonetheless, management expects the near-term impact of rate cuts to be manageable, driven by robust loan demand and deposit growth. JPMorgan has raised its 2025 NII guidance to almost $95.5 billion, highlighting continued strength but warning that further moves are “market dependent.”

Moreover, the shift toward an easier monetary policy is expected to support client activity, deal flow and asset values, which will positively impact JPMorgan’s non-interest income growth.

Lower borrowing costs will support the revival of corporate financing activity, encouraging debt issuance, mergers & acquisitions (M&As) and equity offerings. After a slow deal environment in the last two years, rate cuts are expected to spark a solid rebound in capital markets, boosting JPMorgan’s advisory and underwriting fees. Further, rate transitions often fuel volatility in fixed income, currencies and commodities. Thus, JPMorgan, with the industry’s leading trading desk, stands to gain from increased client hedging and speculative activity.

The Zacks Consensus estimate for JPM’s 2025 earnings is pegged at $19.50, which has been revised 1% higher over the past 30 days. While the estimate indicates a year-over-year decline of 1.3%, its 2026 earnings estimate of $20.38 suggests a 4.5% increase on a year-over-year basis.

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Goldman Sachs: Goldman Sachs is another bank that is well-positioned to benefit from the rebound in capital markets. The company’s investment banking (IB) revenues jumped 24% year over year in 2024, rebounding from a slump during the previous couple of years. Despite subdued IB performance, the company maintained its #1 ranking in both announced and completed M&As.

This year began on an optimistic note, although the market sentiment cooled after Trump’s tariff policies launched on Liberation Day. Deal-making activities have picked up since then, with the uptrend in IB revenues continuing through the first six months of 2025. A strong deal pipeline and Goldman Sachs’ leadership position signal further upside as macro conditions improve.

Moreover, Goldman Sachs’ streamlining effort has been underway for some time as it retreats from the underperforming consumer banking ventures. The company is exiting its non-core consumer banking business and sharpening its focus on Global Banking and Markets, and Asset and Wealth Management (AWM) divisions.

GS is placing more emphasis on its AWM division, viewing it as a more stable revenue source. The company is reportedly exploring acquisitions to expand its AWM footprint. During the second-quarter earnings call, management highlighted the critical role of scale in growing this business. CEO David Solomon noted, “There’s got to be a strategic fit in terms of things that we’re prioritizing in the growth of our asset and wealth management franchise.”

The Zacks Consensus Estimate for GS’ 2025 and 2026 earnings is pegged at $45.63 and $52.40, respectively, suggesting year-over-year growth rates of 12.6% and 14.9%. The 2025 estimated figure has been unchanged over the past 30 days. Currently, Goldman Sachs carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Citigroup: Citigroup also carries a Zacks Rank #2 at present. As the Fed lowers interest rates, the bank’s NII is expected to fall marginally. Yet, for this year, the company expects NII (excluding Markets) to grow around 4%, indicating improved loan demand and higher deposit balances.

Citigroup has also been emphasizing growth in core businesses by streamlining operations internationally. In sync with this, the company is streamlining globally, exiting consumer banking in 14 Asia and EMEA markets (announced in 2021) and has already exited nine countries. Also, Citigroup is simplifying its organizational structure, cutting 20,000 jobs by 2026, with divestitures and workforce reductions expected to save $2-$2.5 billion annually.

Such moves by Citigroup are likely to free up capital, which will be invested in profitable businesses like wealth management and investment banking. 

Additionally, as the company is focusing on a leaner organization structure and reducing global footprint, operating expenses are likely to come down. Citigroup anticipates expenses to be below $53 billion in 2026, excluding FDIC fees, implying a decline from the $56.4 billion in 2023.

The Zacks Consensus Estimate for Citigroup’s 2025 and 2026 earnings is pegged at $7.57 and $9.69, respectively, suggesting year-over-year growth rates of 27.2% and 28%. The estimates for 2025 have been unchanged over the past 30 days.

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