The nation’s largest banks and financials firms kick off first-quarter earnings season this week as global markets whipsaw and recession odds fluctuate due to President Donald Trump’s chaotic tariff moves. Wall Street’s word of the day ahead of results: Uncertainty. Case in point: Morgan Stanley’s economic team said Thursday that Trump’s tariff delay “reduces immediate downside risk, but prolongs uncertainty” for the macro environment. “With the effective tariff rate at 23%, there is a narrow gap between a slow growth outlook and a downturn,” the analysts wrote. “The U.S. economy is still living on the edge.” Uncertainty has also had a chokehold on the stock market’s performance since April 2 when the president announced sweeping global tariffs in two steps. Ten percent across the board, which went into effect last Saturday, and much larger so-called reciprocal tariffs on some 90 countries, which were enacted at midnight Wednesday and have sparked concerns about where the off-ramp might be. Just over 12 hours later, however, Trump said all tariffs would be 10%. He added that there would be a 90-day pause on the country-specific levies, with the exception of China because it had retaliated. He raised tariffs on Chinese imports to 125%, which was on top of a punitive 20% duty tied to fentanyl. Trump’s tariff reprieve led to a historic market rally Wednesday, with the S & P 500 surging 9.5% and securing its third-largest single-day percentage gain since World War II. The Nasdaq ‘s more than 12% gain was its biggest one-day advance since January 2021. Meanwhile, the Dow ‘s nearly 8% increase was its best single day since March 2020. On Thursday, however, Wall Street gave back a big chunk of the prior session’s dizzying gains as the reality set in that 10% tariffs on nearly all imports into the U.S., and escalating China levies can still lead to higher inflation and weaker economic growth. That is on top of the previously imposed industry-specific tariffs on steel and aluminum tariffs as well as autos. Although the latest trade drama and market meltdown happened in April, after the banks closed the books on the first quarter, the near-daily barrage of tariff headlines has been going on for months. That means the reported quarter could certainly be impacted — but, it’s what banks forecast for the quarters ahead and the full year that investors care most about. For the Club’s part, we’ll be focused on portfolio names Wells Fargo’s release on Friday and Goldman Sachs’ report on Monday of next week. Here are three questions we hope to get answered to. 1. What do the management teams have to say about tariffs? During conference calls, we expect executives to address the elephant in the room even after Trump’s 90-day delay. While both of our bank names derive their sales domestically, tariffs can have a wide-reaching impact on their financials. Higher tariffs could impact loan growth if U.S. consumers were to get more worried about the economy. Wells Fargo, in particular, garners a lot of its revenue from interest-based incomes like consumer lending. Other divisions such as wealth management and investment banking can also be impacted by tariffs. Clients are less willing to move large amounts of capital and make deals when there are more economic concerns. This is more relevant to Goldman Sachs, which relies heavily on both. A more extreme concern is banks’ credit quality deteriorating down the line as strapped consumers might have a tough time paying back loans. We’re not worried about this being the case for Goldman Sachs or Wells Fargo anytime soon though. Jim Cramer thinks Wells Fargo will have the “best numbers” among the big financial institutions reporting Friday, which includes Club holding BlackRock as well as JPMorgan and former portfolio name Morgan Stanley. “[Wells] is not really international. It’s domestic,” Jim said during Thursday’s Morning Meeting. “I’m going to like it.” 2. What about the state of the economy? Management commentary on economic health is crucial, too. We want to know what leadership teams at Goldman Sachs and Wells Fargo have to say about interest rate expectations. According to the CME FedWatch tool, the market puts the highest probability on four rate cuts in 2025 — a moving target since central bankers reduced the cost of borrowing three times in the final months of last year. Currently, the Federal Reserve is not expected to cut rates at its May meeting. For Wells Fargo, this is important because the company derives a large part of its revenues from net interest incomes (NII), which are heavily influenced by the Federal Reserve’s monetary policy decisions. It’s important to see how Wells Fargo’s NII comes in versus analysts’ expectations, and if management changes its 2025 outlook. Net interest income is the difference between what the firm makes on loans and pays out on deposits. Wells’ expense guide will also be key because it is a gauge of how management’s efficiency initiatives have been going. “Those are the two big things, but they gave us the best guidance last time they reported with better-than-expected NII and lower-than-expected expenses,” Jeff Marks, the Investing Club’s director of portfolio analysis, said Thursday. As for Goldman, lower interest rates can improve revenue from its investment banking business due to lower borrowing costs and a potentially better macro environment. “There’s going to be a lot more attention paid to what these bank executives think about the near and intermediate-term outlook for the economy and for government policy,” Edward Jones bank analyst James Shanahan told CNBC on Monday. “There’s a lot of uncertainty in the markets right now.” Shanahan added that when JPMorgan CEO Jamie Dimon, BlackRock CEO Larry Fink, and Wells Fargo CEO Charlie Scharf, provide their outlooks for the next few months and the balance of the year, it will be “really helpful for investors, analysts, and the market overall.” 3. What does the pipeline for deals look like? Dealmaking activities like mergers and acquisitions (M & A) and initial public offerings (IPOs) are the lifeblood of investment banking for Goldman Sachs. We want to see what management has to say about their pipeline for deals. That’s because a rebound in the capital market business was a key reason we initiated a position in Goldman Sachs in the first place late last year. So far in 2025, there hasn’t been the pickup that we expected. Jefferies , for example, reported a lackluster quarter on March 26 due to weakness in investment banking. Over the past week, IPO plans for Swedish fintech company Klarna and ticket reseller StubHub have reportedly been paused amid the market’s turmoil as well. Goldman was tapped as the lead underwriter for Klarna’s public debut. “We were also in the camp that this was going to be a good year for capital markets. We thought less regulation, the Trump administration coming in business-friendly and the economy holding in, we’re going to see a pickup,” D.A. Davidson analyst Peter Winter told CNBC last week. “The message that we heard mid-quarter with the pending tariffs [was that] this uncertainty was pushing out some deals.” He continued, “The thing that was important was that the pipelines were still strong on the capital markets side [at the time]. The market, it just hates uncertainty and so the concern is, the longer the uncertainty lasts, the [more] deals [that] will start walking away.” Wells Fargo has a budding investment banking business as well, although much smaller than Goldman’s. We like Wells’ expansion into the industry as it diversifies its overall revenues further. It’s also a key long-term growth prospect for the bank once the Fed-imposed $1.95 trillion asset cap is removed. In a Tuesday analysis, the Club explored how the growth cap may have been a blessing in disguise as it kept Wells in check during a volatile time. (Jim Cramer’s Charitable Trust is long WFC, GS, BLK. See here for a full list of the stocks.) 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A combination file photo shows Wells Fargo, Citibank, Morgan Stanley, JPMorgan Chase, Bank of America and Goldman Sachs.
Reuters
The nation’s largest banks and financials firms kick off first-quarter earnings season this week as global markets whipsaw and recession odds fluctuate due to President Donald Trump’s chaotic tariff moves.
