Goldman Sachs strategists raised their view on global equities to overweight for the next three months while turning bullish on bonds over a 12-month horizon, just as four of the largest U.S. banks prepare to kick off earnings season before Tuesday's opening bell.
Goldman Sachs, JPMorgan, Citigroup, and Wells Fargo — a group with a combined market value of $1.6 trillion — will report quarterly results, with investors watching for signs that high interest rates are weighing on lending and dealmaking.
Why Goldman turned bullish on stocks
The upgrade, led by strategist Christian Mueller-Glissmann's team, isn't a bet on booming profits. It's about price. The strategists noted that oil and bond yields have climbed while earnings estimates haven't followed, leaving valuations looking cheaper by comparison. That math pushed the team to overweight equities for the short run and overweight bonds for the longer stretch.
The shift comes with the S&P 500 hovering near record levels, though the index's headline strength masks widespread weakness underneath. According to Barclays data, more than half of S&P 500 companies are trading at least 20% below their own highs. An even broader 84% of stocks sit at least 10% below their all-time peaks. Real Estate leads the drawdown at 97%, followed by Materials at 96%, Utilities at 94%, and Consumer Discretionary at 92%.
What Wall Street expects from the four banks
Analysts aren't looking for a blowout quarter across the board. Bloomberg Intelligence expects S&P 500 earnings to jump 25% this quarter, and Goldman Sachs thinks companies will beat that estimate. But the four banks face different bars.
Citigroup carries the highest consensus expectation among the group, with analysts forecasting earnings per share to rise 19% year-over-year. JPMorgan isn't far behind at 17%. Wells Fargo and Goldman Sachs face lower hurdles — 7% and 5% respectively, according to Nasdaq consensus estimates. That gap means a miss from Citigroup or JPMorgan could sting more than a soft print from the other two.
Rates are still the main story
Bond yields sit near a 24-year high, a backdrop that KBW's Tom Michaud says will keep bank stocks under pressure until rates settle. For the banks themselves, the quarter will show how they're managing that environment — whether loan demand is holding up, whether trading desks are capitalizing on volatility, and whether deal pipelines are thawing.
Investor Steve Weiss expects banks to cheer new stock listings but stay wary on mergers because borrowing is expensive. He's not counting on a standout quarter. "I don't think it's a slam dunk quarter as everybody's, you know, intimating," Weiss said. Money manager Jenny Harrington argues the market's reaction will carry more weight than the numbers themselves. "The behavior will be more telling than the actual data," she said.
The week's other catalyst
Wednesday brings U.S. inflation data, a release that could shift rate expectations and, by extension, the outlook for bank profitability. If inflation runs hotter than expected, the pressure Michaud describes could intensify. If it cools, the case for rate cuts later this year gets stronger — and bank stocks might finally get the relief they've been waiting for.
For now, the four banks report before Tuesday's open, with Citigroup and JPMorgan facing the highest EPS growth expectations and Wells Fargo and Goldman Sachs carrying lower bars. Whether the results confirm the cautious optimism baked into Goldman's upgrade, or reinforce the earnings anxiety across the rest of the index, will start to become clear before the bell.
