A dealmaking freeze and the biggest rout in financial stocks since 2023 are raising the stakes for the start of Wall Street’s earnings season this coming week.
The big banks that are due to report their first quarter results starting this Friday all tumbled following the release of President Trump’s sweeping new tariffs, including JPMorgan Chase ( JPM ), Wells Fargo ( WFC) , Citigroup ( C ), Goldman Sachs ( GS ), Morgan Stanley ( MS ), and Bank of America ( BAC ). Those lenders fell between 13% and 18% on the week.
An index tracking the larger US banking industry ( ^BKX ) also plunged 15.5% Thursday and Friday, its worst two-day performance since March 2020. Its weekly pullback of roughly 14% was the biggest drop since a regional banking crisis roiled the industry in March 2023.
The industrywide stock rout became the latest example of how Trump’s second term is not starting the way many on Wall Street expected.
Hopes for an IPO bonanza and M&A boom are being put to the test due to uncertainties surrounding the Trump administration’s trade policies and the market reaction to them.
Amid the turmoil of this past week, StubHub and Klarna ( KLAR.PVT ) decided to postpone their IPO roadshows , while another fintech company called Chime ( CHIM.PVT ) delayed its plans to go public, according to the Wall Street Journal.
Trading platform eToro Group Ltd . ( ETTO.PVT ) also paused its planned listing, along with MNTN Inc. and insurer Ategrity Specialty Holdings , according to Bloomberg. Some M&A deals are also on hold, according to Bloomberg.
Executives at JPMorgan, Goldman, and Bank of America, as a result, are already considering revising down revenue for their M&A advisory businesses, according to Bloomberg.
Big banks will be tested in other ways if market watchers are right about the increased odds of a US recession and rising inflation, since both will create new challenges for the lenders and their customers.
The fact that long-term borrowing rates have dropped in reaction to Trump’s trade policies is another problem for banks, in that it makes it harder for them to book big profits on their loans.
Even without a recession, analysts expect bank executives to dial back their annual guidance for loan growth.
There are some positive signs for banks, however, even if they take longer to materialize.
The Trump administration has made it clear it wants to lift constraints on lenders and overhaul a regulatory framework put in place following the 2008 financial crisis. That could help with bank profitability.
The current trading volatility could also help the trading desks of the Wall Street giants.
Analysts who follow the industry also noted that this current rout is different from the one in March 2023, when two key regional banks failed and depositors at many other midsize institutions pulled their money.
"What's going on right now is not a bank-specific event," Piper Sandler analyst Scott Siefers told Yahoo Finance.
"It's affecting the entire world economy. If you contrast this with where we were two years ago, that was very, very much bank-focused.”
The focus this coming Friday, when JPMorgan, Wells Fargo, and Morgan Stanley kick off earnings results will be on forward guidance and how the banks expect the trade policies to affect their outlook.
"The focus is really on the risks ahead," director of Bloomberg Intelligence's research global strategy team Alison Williams told Yahoo Finance on Friday, and "the key concern is credit risk."
If banks decide to set aside considerably more money for future loan losses, that could be a sign they expect the economy to get much worse.
There is little doubt that things have already changed significantly for an industry that was widely optimistic about the start of the Trump administration.
“Banks came into this year relative to their historical valuation, priced for a much better environment,” KBW bank analyst David Konrad told Yahoo Finance.
Their stocks have underperformed the broader market for two main reasons, according to Konrad: a drop in longer-term rates and the rising possibility of a US recession.
KBW expects the industry's earnings per share to be up 3% from last year and down 8% from the fourth quarter.
Konrad expects to see in the first quarter results signs of the mounting uncertainty.
"Going forward, all our questions are going to be about growth and, to some extent, asset quality," Konrad added.
David Hollerith is a senior reporter for Yahoo Finance covering banking, crypto, and other areas in finance.