U.S. Q4 earnings season kicks off! Goldman Sachs: S&P 500 profit forecasts are "too conservative", bank stocks' performance this week is a key indicator.

U.S. Q4 earnings season kicks off! Goldman Sachs: S&P 500 profit forecasts are "too conservative", bank stocks' performance this week is a key indicator.

The U.S. stock market’s fourth-quarter earnings season has officially begun. John Flood, Goldman Sachs’ chief trader, believes that market expectations for S&P 500 earnings are “once again too conservative,” and that actual results are likely to exceed consensus forecasts. This week’s bank earnings reports will serve as key indicators for the market, with JPMorgan set to release its results first on Tuesday. By the first week of February, 68% of S&P 500 constituents will have reported earnings.

Goldman Sachs points out that consensus estimates suggest S&P 500 earnings per share will grow 7% year-on-year in the fourth quarter, but this forecast may once again be too low. Since Q1 2023, the S&P 500 has beaten market consensus every single quarter, achieving double-digit growth in the first three quarters of 2025 and exceeding consensus by an average of 6 percentage points.

However, bank stocks suffered a selloff before the market opened on Monday. Last Friday, Trump stated on Truth Social that starting January 20, he would impose a one-year cap on credit card interest rates at 10%. This statement put pressure on financial stocks: Citigroup fell nearly 4% pre-market, JPMorgan dropped 2.88%, and Bank of America fell 2.36%.

Undoubtedly, Wall Street’s six largest banks are poised for massive profits, thanks to a surge in corporate M&A activity, strong trading income, and lower costs fueled by productivity gains from artificial intelligence. This has been a well-known trend and was the key driver behind last year’s 29% rise in the KBW Bank Index—which includes 24 lending institutions.

Data compiled by Bloomberg shows that analystsexpect S&P 500 bank stocks to post an 8.1% year-on-year gain in fourth-quarter earnings.

Goldman Sachs: Earnings Expectations Still Undervalued

Goldman Sachs’ trading team believes that the market’s earnings forecasts for this reporting season remain overly cautious. The S&P 500 delivered robust results in the first three quarters of 2025, achieving double-digit EPS growth each quarter and consistently beating market expectations.

Even though consensus expects fourth-quarter earnings growth to slow to 7%, Goldman says this projection is “once again too conservative,” and actual results may beat forecasts again. This persistent underestimation has not been interrupted since Q1 2023.

This quarter, the direction of capital expenditures will be a key influence on earnings prospects, especially for large tech stocks involved in AI infrastructure. Consensus forecasts say that YoY capex growth for hyperscale cloud service providers will slow from 75% in Q3 to 54% in Q4 and further down to 24% by the end of 2026. Goldman expects AI spending will again outpace consensus but agrees that AI capex growth could slow by 2026.

Bank Stock Costs Center Stage This Week

Before tech earnings come out, market attention this week will focus on bank stocks. Goldman Sachs has assessed market sentiment for various bank categories.

For large banks, market sentiment is very positive. A wave of capital markets activity, an upbeat outlook on GDP and cyclical sectors, plus ongoing regulatory reform, make money-center banks major beneficiaries of “pro-cyclical” trades.

Regional banks have not participated as fully as money-center banks in the “re-risking” trades, but have maintained a net long position since last fall. Bulls think these banks deserve “early-cycle, low double-digit P/E” valuations, with even greater confidence if regulation is further relaxed. M&A remains a hot topic in the sector, with investors focusing on growth prospects and operating leverage. Bullish interest is concentrated in select individual stocks, mainly super-regional banks rather than small and mid-sized ones.

For custodian banks, investor sentiment is generally upbeat, as these banks’ deposits stand to benefit from Federal Reserve balance sheet moves.

Tech Stocks Win Capital Inflows

Although bank stocks are the focus this week, capital flows to the tech sector are also noteworthy. According to Goldman Sachs prime brokerage, last week information technology was the most net-bought sector worldwide, with the nominal net buy volume hitting a four-month high, and the long-buy to short-sell ratio reaching 2.9 to 1.

Last week’s nominal long buys in the sector hit the highest level in five years. This shows that as the AI investment theme continues to gain momentum, investors remain highly enthusiastic about allocating to tech stocks.

JPMorgan will officially kick off the Q4 2025 earnings season on Tuesday morning, followed byCitigroup,Wells Fargo,Bank of America,Goldman Sachs, andMorgan Stanley, all of which will release their reports later this week. By the first week of February, 68% of the S&P 500’s market cap will have reported results, giving the market a much clearer view of corporate earnings.

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