By Steve Gelsi
Bank stocks have outperformed the stock market with Goldman Sachs’ stock up 23% and JPMorgan Chase’s up 22% in 2025 while the S&P 500 has gained 5.1%
Bank stocks finished a strong first half of the year on Monday on the heels of a fresh bill of health in the U.S. Federal Reserve’s annual stress test.
Monday marked the first regular trading day after the U.S. Federal Reserve said the U.S. banking system would remain sound in the face of a simulated recession, after its review of bank balance sheets.
KBW analyst David Konrad said the results of the Fed’s stress tests “were remarkably strong” due to higher preprovision net revenue generated by the group, as well as a reduction in counterparty trading losses.
Estimates for Goldman Sachs Group Inc. (GS), Wells Fargo (WFC) and M&T Bank Corp. (MTB) stress capital buffers – money that banks must keep on hand in case of shocks to the financial system – will go down more than other banks, Konrad said.
See related: Wells Fargo clears another Fed hurdle as banks pass stress tests.
This may free up capital either for lending or possibly for share buybacks or dividends to stockholders.
Bank of America Corp. (BAC), Citigroup Inc. (C) and JPMorgan Chase & Co. (JPM) also fared well in the Fed’s stress test, Konrad said.
Citi analyst Keith Horowitz said Goldman Sachs emerged as “the big winner” due to its “much better-than-expected” improvement in stress capital buffers.
Improvement in banks’ preprovision net revenue, lower trading and counterparty losses, and better credit-card performance contributed to Goldman’s results, he said.
Goldman’s stock (GS) was the biggest gainer among the U.S.’s six largest banks by market capitalization on Monday, rising 2.5% for its third straight record close.
The stock is now up 23.6% in 2025. That’s well ahead of the 5.1% rise by both the S&P 500 index SPX and the Nasdaq Composite Index COMP, as well as the 3.5% gain by the Dow Jones Industrial Average DJIA.
Jefferies analyst Daniel Fannon said common equity tier-one ratios – which include stress capital buffers – will fall an average of 100 basis points for the 16 largest banks in the Fed’s stress test.
Goldman Sachs’ common equity tier-one ratio will fall 240 basis points, while M&T Bank’s ratio will fall by 120 basis points as the biggest drops in Jefferies’ banking coverage.
While Wall Street analysts are already projecting lower stress capital buffer requirements for the banks, these figures don’t become official until August.
Banks may tweak their dividend increases or request a review from regulars in moves that could alter their final stress capital buffer requirements.
Oppenheimer analyst Chris Kotowski said it’s unlikely that lower capital requirements will translate directly into money returns for shareholders.
“Capital has generally not been the gating factor in decisions about deploying capital for customers,” Kotowski said in a research note. “We doubt that banks will go hog-wild on buybacks. They will want to see these metrics stick for another year or two before accepting them as the new normal.”
Meanwhile, financial stocks continued their winning ways on Monday to cap off a strong first-quarter performance.
JPMorgan Chase & Co.’s stock (JPM) advanced by 1%, also for a record close, and to build up its 2025 gain to 20.9%.
Wells Fargo & Co.’s stock (WFC) was up by 0.9% on Monday, to trade 1.4% below its Feb. 6, 2025, record close of $81.42. It has risen 14.1% this year.
Bank of America Corp.’s stock (BAC) rose 0.4%, to bring its year-to-date gain to 7.7%, while Citigroup Inc.’s stock (C) rose 0.9%, with a year-to-date advance of 20.9%.
Morgan Stanley’s stock (MS) inched 0.1% higher, while its year-to-date rise is at 12%.
The Financial Select Sector SPDR ETF XLF was up 0.8% on Monday and was headed for a record close. It’s risen 8.4% in 2025.
-Steve Gelsi
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06-30-25 2217ET
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