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Will Banks Falter in Q3 Earnings Due to High Rates? ETFs in Focus
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Key Takeaways
Big banks face higher-rate risks ahead of Q3 earnings.
Earnings growth may support banks despite changes of subdued dealmaking.
IYG, IYF, XLF, VFH and IAI offer diversified exposure to big banks.
Wall Street's biggest banks are heading into the third-quarter earnings season with investor expectations running somewhat low. Invesco KBW Bank ETF (KBWB - Free Report) has lost about 9.5% over the past month (as of Oct. 8, 2026) while the S&P 500 has gained about 1.5%. This performance indicates that banking stocks are under pressure ahead of the third-quarter earnings season.
Note that third-quarter earnings are expected to rise to 20% from last year for the largest banks, with investment banking and trading revenues significantly higher than in the previous period and a still-steady the credit portfolio, per Reuters.
However, investors will watch whether a spike in Treasury yields weighs on the industry in the form of weakening dealmaking, subdued lending growth and faltering consumer confidence. Let's delve into the earnings potential of the big six banking companies, which could drive the performance of the sector ahead.
Earnings Whispers
Our proven model does not conclusively predict an earnings beat for PepsiCo this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. But that is not the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
Among the big six, Goldman Sachs Group (GS - Free Report) , JPMorgan Chase & Co. (JPM - Free Report) , Wells Fargo & Company (WFC - Free Report) , Bank of America Corporation (BAC - Free Report) and Citigroup Inc. (C - Free Report) will report earnings on Oct. 13. Morgan Stanley (MS - Free Report) will report on Oct. 14.
GS has a Zacks Rank #2 and an Earnings ESP of -5.88%.
JPM has a Zacks Rank #3 and an Earnings ESP of +1.19%.
WFC has a Zacks Rank #3 and an Earnings ESP of -0.15%.
BAC has a Zacks Rank #3 and an Earnings ESP of -0.30%.
C has a Zacks Rank #3 and an Earnings ESP of +0.36%.
MS has a Zacks Rank #3 and an Earnings ESP of 0.00%.
Are Negative ESPs Bad for Financial ETFs?
As discussed above, chances of a broad-based earnings beat are low as some stocks have a negative ESP. We do not expect extremely upbeat earnings results and outlook from big banks, as higher interest rates slowed capital markets activity late in the quarter. Loan growth may also be compromised with higher rates doing rounds.
Higher rates now may raise deposit costs and weigh on credit quality. However, with the Fed hiking rates by only 25 bps in September, we are unlikely to see a material spike in deposit costs.
Inside Earnings & Revenue Growth Expectations
Below, we mention the Zacks Consensus Estimate for third-quarter earnings per share (EPS) and revenues of the big six banks (as of Oct. 8, 2026).
JPM: EPS of $5.94 (up 17.16% year over year) on revenues of $52.21 billion (up 12.45% year over year)
WFC: EPS of $1.90 (up 7.95% year over year) on revenues of $22.15 billion (up 4.83% year over year)
C: EPS of $2.66 (up 18.75% year over year) on revenues of $23.66 billion (up 7.11% year over year)
BAC: EPS of $1.12 (up 5.66% year over year) on revenues of $30.62 billion (up 9% year over year)
GS: EPS of $12.90 (up 5.31% year over year) on revenues of $16.87 billion (up 11.08% year over year)
MS: EPS of $2.88 (up 2.86% year over year) on revenues of $19.71 billion (up 8.15% year over year)
Bottom Line
Despite the recent spike in interest rates, analysts do not expect banks to face any unrealized losses in their securities portfolios as they did during the 2023 banking crisis, per Reuters. "Most banks have since reduced the duration of their portfolio and managed the risk," according to Cheryl Pate, senior portfolio manager at Angel Oak Capital Advisors, mentioned in the same Reuters source..
However, the investment banking outlook may dim. The Reuters article indicated that analysts are considering whether banks with retail operations could be a better bet than pure investment banks. Hence, investors pinning hopes on a bank stock recovery may try the basket approach or the ETF method.
ETFs in Focus
The basket or ETF approach minimizes the company-specific concentration risks. Financial ETFs that are heavy on those big banks include the likes of iShares U.S. Financial Services ETF (IYG - Free Report) , iShares US Financials ETF (IYF - Free Report) , State Street Financial Sel Sec SPDR ETF (XLF - Free Report) and Vanguard Financials Index Fund ETF Shares (VFH - Free Report) . These funds have considerable exposure to the aforementioned stocks.
The above-said ETFs have moderate exposure to Goldman. iShares U.S. Broker-Dealers & Securities Exchanges ETF (IAI - Free Report) has significant exposure to the stock.
View the Zacks #1 Rank List
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Will Banks Falter in Q3 Earnings Due to High Rates? ETFs in Focus
Key Takeaways
Wall Street's biggest banks are heading into the third-quarter earnings season with investor expectations running somewhat low. Invesco KBW Bank ETF (KBWB - Free Report) has lost about 9.5% over the past month (as of Oct. 8, 2026) while the S&P 500 has gained about 1.5%. This performance indicates that banking stocks are under pressure ahead of the third-quarter earnings season.
Note that third-quarter earnings are expected to rise to 20% from last year for the largest banks, with investment banking and trading revenues significantly higher than in the previous period and a still-steady the credit portfolio, per Reuters.
However, investors will watch whether a spike in Treasury yields weighs on the industry in the form of weakening dealmaking, subdued lending growth and faltering consumer confidence. Let's delve into the earnings potential of the big six banking companies, which could drive the performance of the sector ahead.
Earnings Whispers
Our proven model does not conclusively predict an earnings beat for PepsiCo this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. But that is not the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Inside Our Surprise Prediction
Among the big six, Goldman Sachs Group (GS - Free Report) , JPMorgan Chase & Co. (JPM - Free Report) , Wells Fargo & Company (WFC - Free Report) , Bank of America Corporation (BAC - Free Report) and Citigroup Inc. (C - Free Report) will report earnings on Oct. 13. Morgan Stanley (MS - Free Report) will report on Oct. 14.
GS has a Zacks Rank #2 and an Earnings ESP of -5.88%.
JPM has a Zacks Rank #3 and an Earnings ESP of +1.19%.
WFC has a Zacks Rank #3 and an Earnings ESP of -0.15%.
BAC has a Zacks Rank #3 and an Earnings ESP of -0.30%.
C has a Zacks Rank #3 and an Earnings ESP of +0.36%.
MS has a Zacks Rank #3 and an Earnings ESP of 0.00%.
Are Negative ESPs Bad for Financial ETFs?
As discussed above, chances of a broad-based earnings beat are low as some stocks have a negative ESP. We do not expect extremely upbeat earnings results and outlook from big banks, as higher interest rates slowed capital markets activity late in the quarter. Loan growth may also be compromised with higher rates doing rounds.
Higher rates now may raise deposit costs and weigh on credit quality. However, with the Fed hiking rates by only 25 bps in September, we are unlikely to see a material spike in deposit costs.
Inside Earnings & Revenue Growth Expectations
Below, we mention the Zacks Consensus Estimate for third-quarter earnings per share (EPS) and revenues of the big six banks (as of Oct. 8, 2026).
JPM: EPS of $5.94 (up 17.16% year over year) on revenues of $52.21 billion (up 12.45% year over year)
WFC: EPS of $1.90 (up 7.95% year over year) on revenues of $22.15 billion (up 4.83% year over year)
C: EPS of $2.66 (up 18.75% year over year) on revenues of $23.66 billion (up 7.11% year over year)
BAC: EPS of $1.12 (up 5.66% year over year) on revenues of $30.62 billion (up 9% year over year)
GS: EPS of $12.90 (up 5.31% year over year) on revenues of $16.87 billion (up 11.08% year over year)
MS: EPS of $2.88 (up 2.86% year over year) on revenues of $19.71 billion (up 8.15% year over year)
Bottom Line
Despite the recent spike in interest rates, analysts do not expect banks to face any unrealized losses in their securities portfolios as they did during the 2023 banking crisis, per Reuters. "Most banks have since reduced the duration of their portfolio and managed the risk," according to Cheryl Pate, senior portfolio manager at Angel Oak Capital Advisors, mentioned in the same Reuters source..
However, the investment banking outlook may dim. The Reuters article indicated that analysts are considering whether banks with retail operations could be a better bet than pure investment banks. Hence, investors pinning hopes on a bank stock recovery may try the basket approach or the ETF method.
ETFs in Focus
The basket or ETF approach minimizes the company-specific concentration risks. Financial ETFs that are heavy on those big banks include the likes of iShares U.S. Financial Services ETF (IYG - Free Report) , iShares US Financials ETF (IYF - Free Report) , State Street Financial Sel Sec SPDR ETF (XLF - Free Report) and Vanguard Financials Index Fund ETF Shares (VFH - Free Report) . These funds have considerable exposure to the aforementioned stocks.
The above-said ETFs have moderate exposure to Goldman. iShares U.S. Broker-Dealers & Securities Exchanges ETF (IAI - Free Report) has significant exposure to the stock.