After experiencing their worst quarterly start in years, the upcoming first-quarter earnings for U.S. bank stocks are expected to serve as a catalyst for valuation recovery.
Disturbed by the ongoing conflict in the Middle East and Credit Risk in the credit market, the share prices of Wall Street's major banks have recorded their steepest declines this year since the regional banking crisis of 2023. As sector valuations gradually digest the pressure, the upcoming dense disclosure of first-quarter financial reports may provide an important rebound opportunity for bank stocks.
Starting next Monday, Goldman Sachs will be the first to kick off the earnings season, with JPMorgan Chase, Citigroup, Wells Fargo, Bank of America, and Morgan Stanley following in succession. Analysts expect the six major banks to deliver strong trading revenue performance in the first quarter, benefiting from regulatory easing and increased market activity. Bloomberg data shows that the S&amp;P 500 financial sector's earnings expectations for the first quarter reached 16%, higher than the average level of 12.5% for the overall components.
However, market focus is not limited to the performance itself. Analysis points out that Private Credit Risk, interest rate trends, M&amp;A market prospects, and the potential impact of the Middle East conflict on economic growth and inflation will be the core variables determining the subsequent direction of bank stocks. In the current complex situation, management's guidance on risk may have a market influence that transcends the current period's profit itself.
<h2>Valuation Discount of 40%, Bank Stocks Called &#34;High Quality at a Low Price&#34;</h2>
The KBW Bank Index fell 6% in the first quarter, its weakest quarterly performance since 2023. This stands in sharp contrast to the strong market performance of 2025—the index rose 29% throughout last year, outperforming the S&amp;P 500 and Nasdaq 100 indices. Although the index has rebounded 7.9% since entering April, it is currently trading at an expected P/E ratio of only 12 times, a discount of approximately 40% compared to the S&amp;P 500's 20 times.
Michael O'Rourke, Chief Market Strategist at JonesTrading, stated, &#34;From a valuation perspective, the banking industry remains the most fundamentally attractive sector in the S&amp;P 500, having been in a phase of adjustment and digestion since 2026.&#34;
UBS analyst Erika Najarian believes that as the market value of big banks shrunk during the first-quarter sell-off while fundamentals remained largely unchanged, some &#34;quality stocks are currently being sold at a discount.&#34; She upgraded Morgan Stanley's rating to &#34;Buy&#34; on April 7, noting that the strong momentum in direct lending, capital markets, and industry deregulation could create buying opportunities for bank stocks that have underperformed so far this year.
Mike Mayo, Head of Banking Research at Wells Fargo, also stated that while management guidance may lean toward conservative and market focus remains on geopolitical conflict risks, long-term investors should view the current pullback as a buying opportunity. He pointed out that the $8 trillion investment-grade bond market indicates that bank credit quality is no weaker than that of ordinary enterprises, yet the stock market gives bank stocks a discount as high as 40%, &#34;which is clearly unreasonable.&#34;
<h2>Private Credit Risk Looming Large, Credit Quality Becomes Key Highlight</h2>
Entering this earnings season, the risks hidden within the $1.8 trillion private credit industry are becoming a common source of pressure for bank stocks, asset management companies, and business development companies.
Ebrahim Poonawala, a banking analyst at BofA Securities, stated, &#34;Private credit itself will not fundamentally affect banks' profitability and prospects, but investors do want to obtain more details and explanations in next week's earnings reports.&#34;
Herman Chan, an analyst at Bloomberg Intelligence, pointed out that the market focus is on key performance guidance and whether macro pressure has begun to cause cracks in credit quality. He added that if bank stocks give positive market guidance, it will be regarded as a favorable signal.
<h2>Conflict Evolution Dominates Market Sentiment, Prospects Still Uncertain</h2>
The evolution of the Middle East conflict remains the largest source of uncertainty, with the prospects of a ceasefire agreement remaining variable. Mike Mayo, Head of Banking Research at Wells Fargo, stated bluntly that the trajectory of the conflict will determine the trajectory of bank stocks. If the short-term conflict escalates, the results will be difficult to predict, making it hard for investors to form firm investment conclusions.
Analysts generally believe that until the inflation path and economic growth outlook become clear, it will be difficult for bank stocks to break out into a sustained trend. Ebrahim Poonawala, an analyst at BofA Securities, stated, &#34;Before investors form a clearer judgment on the inflation outlook, any rebound in the stock market may experience a period of consolidation, and this assessment process may take weeks or even months.&#34;
Manan Gosalia, an analyst at Morgan Stanley, holds a relatively optimistic stance. He pointed out that if macro risks subside, most banks are expected to outperform the market, for reasons including a large amount of capital expected to be released, strong earnings, and low Credit Risk. He believes that the mid-term trends for most banks remain achievable, and the current low valuation levels provide an attractive risk-reward ratio for positioning before the earnings season.
It is worth noting that unlike the pressured performance of big banks this year, regional bank stocks have shown relative resilience, outperforming big banks and continuing the pattern of regional banks leading in 2025. Herman Chan, an analyst at Bloomberg Intelligence, believes that anxiety for regional banks is relatively limited because their risk exposure in areas such as lending to non-bank financial institutions is smaller, and they have not been subject to the same pressure of rising expected fees as big banks.

MSLC

Goldman Sachs, JPMorgan Chase, Citigroup, Wells Fargo, Bank of America, and Morgan Stanley—the big six banks—will successively disclose their first-quarter earnings reports next week, with the market generally expecting strong trading revenue performance. Market focus is centered more on management's forward-looking guidance on risks. Private Credit Risk, interest rate trends, and the evolution of the Middle East conflict are regarded as core risk variables requiring close attention

- U.S. bank stocks are poised for a valuation recovery catalyst with upcoming earnings reports after a poor quarterly start.  
- Major financial institutions, including Goldman Sachs and JPMorgan, are expected to show strong first-quarter trading revenues due to regulatory easing and increased market activity.  
- However, ongoing risks from private credit and geopolitical conflicts are critical factors influencing future bank stock performance and market sentiment.

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U.S. Bank Earnings Season Is Here: Geopolitical Conflicts + Private Credit Risks Loom, Can Valuations Recover?