Big Banks Keep Winning—and So Do Their Stocks

Morgan Stanley and Capital One are having great years along with the other big banks. (Getty Images)

America’s largest banks are having a great start to the summer. To their delight, they have got a new slate of regulators set to make bank management teams’ lives easier. A stress test gave way to big dividend hikes this week. There are growing signals that lower interest rates are coming.

Investors are responding in kind. The KBW Nasdaq Bank Index has risen for 10 straight trading sessions, its longest such streak on record, underlining shareholders’ rosy outlooks. Shares of Morgan Stanley, JPMorgan Chase, Capital One , and BNY have all hit record highs.

The performance is a remarkable reversal from just three months ago, when U.S. stocks fell to the brink of a bear market following President Donald Trump’s early April tariff announcements.

The showing also comes despite remaining uncertainties over the administration’s trade negotiations and, as a result, unknowns about the direction of global economies to which big lenders are tightly tethered.

Ahead of banks’ next earnings reports, due out in two weeks, Wall Street is looking through all that and issuing largely positive sector outlooks.

One longtime bank analyst is even singing about it. Sort of. “I made a song using AI about the banks & brokers and potential M&A,” Evercore ISI’s Glenn Schorr said in an email to readers of his work Wednesday.

“I might be tryin’ to be a little funny / But these banks have got a lot of money / So while you’re out on vacation / They might use their high valuation / And not a buyback authorization / But an M&A situation.”

That just about sums up the sell side’s bullish forecasts. On top of other drivers, investors like the potential for bank consolidation in the coming years under what Raymond James analyst Ed Mills calls the “largest changeover in federal financial regulatory history.”

Indeed, a “New Era for Bank Regulation” has arrived, Morgan Stanley analyst Betsy Graseck said in her bullish stress test assessment.

In late June she bumped up second-quarter, 2026, and 2027 earnings estimates and price targets for Bank of America, Citigroup, JPMorgan, and Goldman Sachs because of improving capital markets. Graseck specifically pointed to higher fees from investment banking, asset and wealth management, and asset servicing businesses.

Banks’ second-quarter earnings are expected to rise broadly, RBC Capital Markets analyst Gerard Cassidy said. He sees median core per-share earnings rising 5.5% from last quarter and 5.8% from a year ago.

Risks to these positive theses remain. Graseck said while recession risk is “much lower” than it was in April, “we could see the return of market volatility if geopolitical conflicts escalate or tariff-related impacts to the broader economy are worse than expected.”

Banks also are “sporting pretty full multiples, leaving us not a ton of room for error if the market tosses us a curveball,” Schorr said.

Investors are due for clarity on how the springtime turmoil impacted banks’ balance sheets when they get earnings reports. On the whole, Wall Street’s message to bank investors is increasingly rooted in faith in what the Trump administration can do for the biggest lenders long-term.

Write to Rebecca Ungarino at rebecca.ungarino@barrons.com