How Will Bank ETFs Perform in Light of Q4 Earnings?

Big banks will start releasing their quarterly numbers this week. Let’s delve into the earnings potential of the big six banking companies, which could drive the performance of the sector ahead.

According to our methodology, a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) when combined with a positive Earnings ESP, increases the chances of predicting an earnings beat, while companies with a Zacks Rank #4 or 5 (Sell rated) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Inside Our Surprise Prediction

Among the big six, JPMorgan Chase & Co. (JPM) is expected to report earnings on Jan. 13. Wells Fargo & Company WFC, Citigroup Inc. C and Bank of America Corporation BAC are likely to report on Jan. 14. The Goldman Sachs Group GS and Morgan Stanley MS are expected to come up with earnings results on Jan. 15.

JPM has a Zacks Rank #3 and an Earnings ESP of positive 0.08%.

WFC has a Zacks Rank #3 and an ESP of negative 0.15%.

C has a Zacks Rank #3 and an ESP of 0.00%.

GS has a Zacks Rank #3 and an ESP of negative 0.14%.

BAC has a Zacks Rank #3 and an Earnings ESP of negative 0.08%.

MS has a Zacks Rank #2 and an Earnings ESP of negative 0.97%.

Are Negative ESPs At All a Threat to Financial ETFs?

As discussed above, chances of a broad-based earnings beat are moderate as most stocks are experiencing a negative ESP. We do not expect bearish earnings results from big banks as capital market activities should be upbeat. The investment banking revenues should be strong, per Reuters.

Despite ongoing tariff threats and policy uncertainty, banks reported in mid-2025 (mentioned on Yahoo Finance) that corporate clients remain undeterred. Companies are still pursuing mergers, issuing debt and going public. This shows that strategic initiatives are in place, boosting dealmaking activities. Upbeat IPO environment and improving trading activities are likely to drive banks’ results this reporting season (read: Will 2026 be a Great Year for Banks? ETFs in Focus).

Any Deterrent for a Short-Term Bank Rally?

However, despite the potential for upbeat Q4 results, we believe financial stocks and ETFs may see subdued trading in the coming days due to the likelihood of a flattening yield curve. Geopolitical crises may boost risk-off sentiment and keep long-term bond yields in check, resulting in a flatter yield curve. As banks borrow at short-term rates and lend at long-term rates, a flattening yield curve compresses their net interest margins.

Bottom Line

So, whatever the earnings surprise is, investors can play these financial ETFs on the basis of yield curve movement. Hence, investors pinning hopes on a bank rally must be keen on knowing how financial ETFs like iShares U.S. Financial Services ETF IYG, iShares US Financials ETF IYF, Invesco KBW Bank ETF KBWB, Financial Select Sector SPDR XLF and Vanguard Financials ETF VFH are placed before their earnings releases. These funds have considerable exposure to the aforementioned stocks.

Goldman has moderate exposure in the aforementioned ETFs. It is heavy on iShares U.S. Broker-Dealers & Securities Exchanges ETF IAI.

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This article originally published on Zacks Investment Research (zacks.com).

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