A range of the most prominent U.S. bank stocks surged between 2% and 5% in today’s afternoon session. JPMorgan Chase (NYSE:JPM), Wells Fargo (NYSE:WFC) and Citigroup (NYSE:C) each saw impressive increases. Investors are now digesting these companies’ earnings and reassessing their potential in a rising interest rate environment.
Indeed, earnings season brings with it the potential for some big moves. And with most major banks among the first companies to report, investors tend to get a sneak peek into not only how these specific banks are performing but also some hints as to how the broader economy looks to be holding up.
By all accounts, things appear to be positive. Let’s dive into what these banks reported and why investors are seeing so much green on their screens in this space today.
Bank Stocks Surge on Positive Earnings Results
Across each of the aforementioned major U.S. banks, profitability rose in Q3. JPMorgan Chase, Citigroup and Wells Fargo appear to be soaking up much of the lost business from smaller regional banks, as consumers and businesses around the country shift to more centralized organizations.
Revenue growth of 21% at JPMorgan highlighted strength in the American consumer. Furthermore, it signaled that, at least for now, lending activity remains strong. The company’s CEO Jamie Dimon did note that geopolitical risks and other macroeconomic risks are worth keeping an eye on. However, a healthy consumer is one JPMorgan and its peers are highlighting. For investors, that’s music to their ears.
Other regional lenders who reported showed mixed results but generally underperformed these three major banking giants. Accordingly, it appears that investor capital remains more focused on the big players in the financials sector, viewing small- to medium-sized banks as much higher risk, considering the impact of higher interest rates on deposits.
Net interest income, or the spread between what banks earn in terms of the interest rate they charge on loans and their borrowing cost, beat expectations. JPMorgan, for example, posted a 30% year-over-year jump in this key metric. Investors appear to be viewing this as very positive for these banks’ longer-term outlooks.
Personally, I remain wary of financials in general. But I also understand the thesis that if an investor wants to, or has to, be invested in this sector, these are the kinds of companies to be invested in. Thus, at least for now, these are the bank stocks investors should keep an eye on.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
