Wall Street giants' earnings reports kick off tonight: With share prices mired in a technical correction, a 20% profit growth forecast fails to dispel threefold anxiety.

Title context: Wall Street giants' earnings reports kick off tonight: With share prices mired in a technical correction, a 20% profit growth forecast fails to dispel threefold anxiety. Text: Large U.S. bank stocks hovered in technical correction territory on Tuesday as the earnings season kicked off, with long-term borrowing costs climbing to their highest levels in decades, making market participants particularly focused on bank executives' assessments of U.S. consumer health and the credit outlook. According to compiled analyst estimates, the largest Wall Street banks are expected to report about $19 billion in quarterly equity trading revenue. At the same time, lending volumes are expected to grow year over year, and credit quality is also expected to remain stable. However, the KBW Bank Index, the industry benchmark, has fallen about 12% since its mid-August peak, exceeding the 10% technical correction threshold. This decline has occurred in tandem with surging U.S. Treasury yields and the Federal Reserve's first rate hike in three years, and the index is experiencing its worst quarterly performance since early 2023 - when a similar rise in yields triggered a regional banking crisis and battered bank stocks. This has forced banks to seek a balance between deposit-side costs and loan-side returns, while the sharp volatility in the bond market has put them under pressure. Matt Miskin, a strategist at Manulife John Hancock Investments, pointed out that persistently rising interest rates on credit cards, auto loans, and mortgages are creating additional pressure on banks. He said: "Higher yields can bring better revenue, but they may also reach a tipping point that leaves consumers unable to repay such loans." Currently, the 10-year U.S. Treasury yield is steady near 5.2%, after previously touching its highest level since 2002. The 30-year Treasury yield has risen to near 5.6%, also approaching a more than two-decade high. Earlier, the minutes of the Fed's September meeting showed that all 19 policymakers supported the September rate hike, and most believed further tightening would be needed this year, with markets pricing about a 70% probability of a December rate hike. Strong earnings expectations, but mixed market sentiment Despite pressure on share prices, analysts still expect large banks' third-quarter earnings to rise 20% year over year, with investment banking and trading revenue significantly higher than the previous quarter, and no signs of deterioration in credit portfolios. Last month, Jefferies Financial Group Inc.(JEF.US), which reported earlier, said its investment banking and equity trading divisions had a record quarter, although other metrics were mixed. Specifically: JPMorgan Chase(JPM.US) is expected to report earnings per share of $5.94, up about 17% from $5.07 a year earlier, with revenue expected to rise from $47.1 billion to $51.2 billion. Co-President Doug Petno previously said investment banking fees and trading revenue are expected to grow in the "mid-to-high teens." Goldman Sachs Group, Inc.(GS.US) is expected to report earnings per share of about $12.44 and revenue of about $16.8 billion, compared with $12.25 and $15.2 billion a year earlier. Chief Executive Officer David Solomon previously warned investors that fixed income, currencies, and commodities would be relatively weak, while equities were expected to remain strong. Bank of America Corp(BAC.US) is expected to report earnings per share of $1.10, slightly above $1.06 a year earlier, with revenue expected to reach $30.55 billion. But Chief Executive Officer Brian Moynihan previously warned that the bank's investment banking fees were expected to fall at least 10% year over year, sending its shares sharply lower. He said: "We already have very small positions in some of the more active businesses, so the decline could be even larger." Citigroup(C.US) is expected to report earnings per share of $2.41 and revenue of $23.72 billion. Chief Financial Officer Gonzalo Luchetti previously said the bank expects return on tangible common equity this year to be slightly above its 11% target and will increase share buybacks in 2026. Wells Fargo & Company(WFC.US) is expected to report earnings per share of $1.85 and revenue of $22.32 billion. Chief Financial Officer Mike Santomassimo said loan growth in 2026 is expected to be better than previously anticipated, and U.S. consumer and credit trends remain healthy. Morgan Stanley(MS.US) is expected to report earnings per share of $2.94 and revenue of $20.11 billion. Co-President Dan Simkowitz noted that the bank's investment banking backlog still looks solid, and companies remain in the middle of the AI investment cycle. Four banks - Citigroup, Goldman Sachs Group, Inc., JPMorgan Chase, and Wells Fargo & Company - will report before the U.S. market opens on Tuesday, while Bank of America Corp and Morgan Stanley are scheduled to report on Wednesday. Cooling IPO market adds to investment banking concerns But the surge in bond yields has clearly dampened capital markets activity. At the end of the third quarter, smart ring maker Oura and SoftBank-backed AI data center developer SB Energy successively postponed IPO plans. According to Renaissance Capital, seven companies announced delays or withdrawals of listing plans in the third quarter, up from four in the second quarter and three in the first quarter. Only 30 IPOs were completed in the third quarter, the lowest in ten quarters, raising a total of $32.8 billion, far below the 48 in the second quarter and the average of 49 in the third quarter over the past decade. UBS Group AG bank analyst Erika Najarian said in a client note that weakness in bank stocks is directly related to the surge in yields, and investors need assurances that the capital markets backlog remains sufficient, loan growth is on track, and deposit cost increases are controllable. Cheryl Pate, senior portfolio manager at Angel Oak Capital Advisors, believes investors will focus on guidance for credit growth and deposit costs. "We do not expect large-scale deposit outflows - that is, customers chasing higher yields - nor do we expect a sharp rise in deposit costs," Pate said. She also noted that despite the recent rise in rates, analysts do not expect banks to face unrealized losses on securities portfolios again as they did during the 2023 banking crisis. "Most banks have since shortened portfolio duration and managed the related risks." AI "panic trade" and midterm election risk In addition to interest rate factors, bank stocks also face multiple nontraditional risks. The potential impact of artificial intelligence (AI) agents on traditional bank deposit and lending business models, as well as possible policy changes from the November midterm elections, have become focal points for investors. JPMorgan analysts previously predicted that an unexpected Republican landslide could benefit lenders such as Bank of America Corp, Citigroup, and Wells Fargo & Company, since Republicans have historically favored looser regulation of the financial industry. But polls show Republicans are losing ground amid voter dissatisfaction with the economy and the war with Iran. Manulife's Miskin pointed out that sectors such as banks and industrials, which "historically benefit more from Republican policies," have recently underperformed, which may indicate the market is pricing in expectations of a Democratic sweep in advance. On the AI issue, Meta(META.US)'s recent launch of the consumer AI agent Muse sparked concerns that AI agents could erode banks' deposit bases and wealth management businesses, briefly pushing bank stocks into an AI "panic trade." A report published by research firm Citrini Research provided a theoretical framework for the panic. The report offered a judgment that chilled the banking industry: a considerable portion of Bank of America Corp's profits is built on customer "inertia" - consumers keep money in low-interest accounts for convenience and habit, allowing banks to obtain funds at extremely low cost and invest in higher-yielding assets. In a subsequent report titled "Breaking The Wall," Citrini Research further pointed out that autonomous AI agents will operate programmatically, around the clock, and across applications, and that money and financial assets will eventually flow in the same way, which will greatly increase demand for programmable financial infrastructure. Apollo Global Management chief economist Torsten Slok conceptualized this threat as an "agentic bank run." In a September report, he noted that AI assistant agents such as Muse could soon automatically move household cash from checking accounts paying an average rate of just 0.1% into fintech accounts yielding between 3.3% and 5.0%. Slok wrote in the report: "If every household uses an AI agent to optimize cash returns, banks could lose a large amount of the cheap deposits they use to make loans, and that would be a problem for the entire financial system." Institutional views diverge: buy the dip or reduce exposure? Facing the deep pullback in bank stocks, Wall Street analysts' views have diverged markedly. Wells Fargo & Company analyst Mike Mayo has taken a relatively optimistic stance. In a September report, he noted that the midterm elections could "have some impact on deregulation, but will not derail it," and predicted that the AI "panic trade" would reverse as banks report earnings, because "banks' moat of trust is the safeguard for deposits." This means that although AI agents are technically capable of executing fund transfers, whether consumers are willing to hand financial control to technology companies known for "moving fast and breaking things" remains a major obstacle. Bank of America Corp's global research division holds a similar view, noting that although Muse's popularity is impressive, there is so far no indication that users are willing to hand over login credentials for their financial accounts to AI agents. A Truist investor survey conducted at the end of September showed that more than half of bank investors still believe Fed rate hikes are the biggest risk to valuations, with only a very small number mentioning the threat of AI agents. Morgan Stanley analyst Manan Gosalia called the recent selloff an "attractive entry point," advising investors to use it to position for stronger performance in 2027. He noted that AI-related investment and an overall solid economy will support bank stocks, and that while rising rates increase banks' funding costs, "revenue should rise at the same time." However, CIBC Capital Markets strategist Christopher Harvey has taken a more cautious stance. He expects bank executives' comments on consumer health and the economic outlook to be more guarded than a few months ago. Still, he believes the sector could see a "relief rally" - bank stocks often rebound after earnings when they have lagged beforehand. But he added that if a rebound occurs, "we will use that opportunity to reduce exposure," and given the macroeconomic headwinds facing companies, he prefers communication services and utilities to financials. In the options market, traders held a bullish bias on JPMorgan Chase, the largest U.S. bank, before its earnings release. Late last week, trading showed that demand for call options betting on a 10% gain exceeded demand for protection against a 10% decline, and open call contracts outnumbered put contracts, a potentially bullish signal. However, the options market's implied expectation for JPMorgan's post-earnings share price move is about 3.57%, above its average actual move of 2.36% after earnings over the past four quarters.