JPMorgan and Goldman Sachs are expected to lead Wall Street banks in strong profit growth for the upcoming earnings season. This expected profit growth is driven by investment banking activity and trading volumes amid volatility in the Middle East, with Goldman Sachs set to issue the starting gun on US banks earnings season on Monday. Higher interest rates bode well for lenders, with net interest income expected to hold firm for US lenders in the first quarter as central banks held off on a hasty approach to cutting rates amid inflation jitters from the Iran war. JP Morgan is tipped to notch 8.5% growth in interest income, according to analyst estimates from the London Stock Exchange Group (LSEG), with profit growth for JP Morgan set to come in at just over seven percent.
This financial optimism unfolds against a backdrop of persistent Middle East conflict driving market volatility and geopolitical tensions. Since October 7 last year, an armed conflict between Israel and Hamas-led Palestinian militant groups has been ongoing in Gaza and Israel. On October 1, Iran launched approximately 180 ballistic missiles at Israel, with many intercepted by Israel and a U.S.-led coalition, but some struck central and southern Israel, damaging air bases. Iran's regional proxies, including Yemeni Houthis and Lebanese Hezbollah, have exchanged missile attacks with Israel, involving Israel in a multifront battle.
The conflict has escalated into direct Iran-Israel hostilities with significant U.S. military involvement. On October 26, Israel launched a targeted attack on an Iranian missile production site in response to a ballistic missile attack, killing one civilian and 4 IRGC soldiers. The U.S. stationed B-52 Stratofortress bombers and F-15 fighter jets in the region. According to Israeli intelligence, Tehran is expected to launch a counter-attack from Iraq in early November. Israel and the U.S. reprimanded Iran and threatened severe retaliation, including possible direct attacks on Iranian oil facilities. This follows earlier escalations: on April 1, Israel allegedly attacked the Iranian consulate building in Damascus, Syria, killing 13 people, including seven IRGC members. In April, Iran launched Operation True Promise, a massive aerial attack on Israel involving over 120 ballistic missiles, 30 cruise missiles, and 170 drones, with the U.S. intercepting many from bases in Syria, Iraq, Jordan, and Yemen. Later in April, the Israeli Air Force launched airstrikes targeting an S-300 air defense facility in Isfahan, Iran, causing no extensive damage. In July, Israel assassinated Ismail Haniyeh, Hamas's political leader, in Tehran during the inauguration of Iranian President Masoud Pezeshkian. In September, Israel initiated Operation Northern Arrows, a ground invasion into Lebanon as part of the Israel-Hezbollah conflict. On September 27, Israeli aircraft attacked residential buildings in southern Beirut using bunker buster bombs to kill Hassan Nasrallah.
The U.S. has put into action resources from the largest military buildup in the region in decades, with operations possibly lasting several days. The U.S. is urging Iranians to try to achieve governmental change. Prediction markets had priced a rising expectation of U.S. military action in Iran by March, reaching nearly 70% on Friday.
Higher interest rates are supporting bank profits amid delayed rate cuts. JP Morgan is tipped to notch 8.5% growth in interest income, according to analyst estimates from LSEG, with profit growth set at just over seven percent. This environment benefits lenders broadly, as net interest income holds firm due to central bank caution on cutting rates, influenced by inflation concerns from the Iran war.
Detailed projections for JPMorgan show strong performance. JPMorgan Chase is expected to report Q4 adjusted EPS of $4.10, up 23.8% YoY, with revenue forecast at $41.94 billion, up 1.41% QoQ. JPMorgan's net income is projected at $11.67 billion, up 20.2% YoY, with return on equity at 14.12%. JPMorgan has beaten earnings estimates in 8 out of 8 past quarters for GAAP EPS.
Goldman Sachs also presents a positive earnings outlook. Goldman Sachs's net income is projected at $2.71 billion, with return on equity at 9.98% and YoY growth of 2.97% in GAAP earnings. Goldman Sachs has beaten estimates in 5 out of 8 recent quarters.
Citigroup is forecast for the biggest boom, which is expected to come from a rise in its investment banking fees and market revenue. A volatility-backed profit boom would mirror a similar outlook to the first three months of 2025. Top lenders were able to smash profit expectations after reaping the rewards of a trading boom caused by President Donald Trump’s erratic tariff agenda. JP Morgan comfortably topped first-quarter estimates after booking $46bn in revenue, while analysts had pencilled in $44.11bn.
Current commodity price movements reflect geopolitical tensions. Oil prices recently pushed above $72 a barrel, and gold rallied towards $5,300 an ounce amid geopolitical tensions.
However, the long-term oil market outlook projects a glut and price declines for 2025. Global commodity prices are set to tumble to a five-year low in 2025 amid an oil glut, with prices remaining 30% higher than pre-COVID levels. The global oil supply is expected to exceed demand by an average of 1.2 million barrels per day in 2025, a glut exceeded only in 2020 and 1998. China's oil demand has flatlined since 2023 due to industrial slowdown and increased electric vehicle and LNG truck sales. OPEC+ maintains significant spare capacity of 7 million barrels per day, nearly double pre-pandemic levels. Brent crude oil price is expected to fall to $73 in 2025 if conflict does not intensify, down from $80 in 2024.
Politically, Donald Trump won 300 electoral votes, surpassing the 270 needed to win the presidency, and became the second leader to serve non-consecutive tenures.
Banks are positioned to benefit from current volatility, with investment banking and trading activities likely to thrive amid market fluctuations.
Key uncertainties persist, including the exact timing and scale of Iran's expected counter-attack from Iraq, as only Israeli intelligence suggests it will occur in early November.