The stock market's big next test: A wave of bank earnings

The next big hurdle for stocks is coming this week.

Earnings season is about to kick into high gear, with a handful of banking titans on deck to report results for the second quarter. Here are the big banks due to report earnings on Tuesday:

Investors will be taking in the results alongside the critical June inflation report, which will be published at 8:30 a.m. ET on Tuesday.

The bank earnings are also coming at a critical moment for the broader market, which has seen some volatility in the hot AI trade lately amid growing nervousness among investors that firms could be overspending on AI. Memory and chip stocks — the hottest corner of the market this year — have been hit with waves of selling as investors rotate into less crowded trades.

The financials sector has been the best-performing corner of the S&P 500 in the last month, rising more than 7%, and it’s an area of the market that’s gained more attention as markets eye potential rate hikes this year.

Comments from the big banks with consumer businesses will provide important updates on the health of the US consumer as spending continues to be a major driver of the economy.

“The recent action in bank stocks is constructive (500-800bps of outperformance vs. S&P 50 YTD), as discounted valuations and fundamental momentum are allowing the rotation discussion to continue. ‘Higher for longer’ is firmly entrenched in market expectations,” analysts at Keefe, Bruyette & Woods wrote in a note previewing earnings last week.

The second quarter is expected to be a strong earnings season overall. All sectors of the S&P 500 besides healthcare on track to post year-over-year earnings growth, JPMorgan strategists wrote in a note on Friday.