US bank stocks rose on Tuesday after RBC Capital Markets issued a bullish outlook for the sector, predicting double-digit core earnings growth in the second quarter. The optimism was bolstered by data showing planned job cuts fell to 45,849 in June, suggesting a resilient labor market that could support loan demand and credit quality.
RBC's Earnings Forecast
RBC, a major investment bank, expects the median US bank to report core earnings per share 19% higher than a year ago in Q2. That figure is close to the 21% increase implied by Wall Street consensus estimates. Core earnings exclude one-time items, giving investors a clearer view of underlying profitability.
The forecast is partly driven by net interest income—the difference between what banks earn on loans and securities and what they pay on deposits. When interest rates are elevated, banks typically benefit from wider margins, at least initially, as loan rates adjust faster than deposit costs.
The 10-year US Treasury yield recently climbed to 4.47%, which can keep loan pricing firm. However, higher yields also increase the risk that customers demand better savings rates, squeezing margins over time. This dynamic is a key focus for investors as earnings season approaches.
Labor Market Support
The softer job-cut figure added to the positive sentiment. Planned layoffs fell to 45,849 in June, down from previous months, signaling a steadier labor market. For banks, a stable employment environment typically means fewer loan defaults and healthier demand for credit—both critical for earnings guidance beyond a single quarter.
This data aligns with broader economic signals. Recent reports, such as the US factory growth slowdown in June, showed employment holding steady, reinforcing the view that the economy is cooling gradually rather than contracting sharply.
What It Means for Investors
RBC's 19% EPS call puts deposit costs back in focus. The market's next question isn't simply whether banks beat Q2 estimates; it's whether they can keep net interest income growing without giving most of it back through higher funding costs.
Early in a rate cycle, deposit rates tend to lag, lifting banks' net interest margin—the gap between what they earn and what they pay out. Over time, that gap can shrink as competition forces banks to pay up for deposits, even if Treasury yields stay near 4.47%. So the staying power of any rally in broad financials, like the NYSE Financial Index and the Financial Select Sector SPDR ETF, will likely hinge on management commentary about deposit pricing and next-quarter net interest income as much as the headline EPS number.
Investors should also watch for guidance on loan growth and credit quality. A steady labor market supports consumer lending, but higher rates could dampen demand for mortgages and business loans. Banks that manage deposit costs effectively may outperform peers.
Broader Market Context
The bank rally comes amid mixed signals in global markets. A strong dollar is pressuring Latin American markets, while base metals like aluminum and copper have slid on tariff uncertainty. In contrast, RBC has also highlighted strong Q2 prospects for other sectors, such as Enterprise Products Partners, driven by widening NGL margins.
For bank investors, the key takeaway is that Q2 earnings are likely to be solid, but the sustainability of that performance depends on how banks navigate deposit competition and loan demand in a high-rate environment. As earnings season unfolds, management commentary will be as important as the numbers themselves.
