Joe Tigay Q3 Earnings Preview: Why Banks Matter More Than You Think
By Joe Tigay
As Q3 earnings season kicks off, the market’s obsession with big tech is understandable but potentially misplaced. Yes, the AI capital expenditure story at Microsoft, Amazon, and Alphabet will dominate headlines. Yes, everyone wants to know if those massive investments are finally translating into revenue growth. But while the market fixates on whether tech giants can justify their AI spending spree, the real litmus test for this rally sits elsewhere: bank earnings.
Banks: The Canary in the Coal Mine
Financial institutions will kick off earnings season, and their results will provide the first real answer to a critical question: Is the economy actually as strong as the stock market suggests?
Banks are the ultimate economic thermometer. Their quarterly results reflect:
- Consumer health through credit card spending and loan demand
- Business confidence via commercial lending activity
- Credit quality through delinquency rates and loan loss provisions
- Interest rate impact on net interest margins
If banks deliver strong earnings, it validates the market’s bullish stance. If they stumble, it’s an early warning that the disconnect between market enthusiasm and economic reality is wider than we thought. All indicators point toward banks having a solid quarter—but the proof will be in the numbers, not the expectations.
Tech Earnings Matter, But 2026 Guidance Matters More
Don’t get me wrong—big tech earnings are important. But here’s what really matters: Q3 bottom-line results for Microsoft, Amazon, and Alphabet are far less important than their 2026 guidance.
The CapEx momentum question looming over these giants is valid. They’re spending at unprecedented levels to build out AI infrastructure. But the real question isn’t whether they can beat Q3 estimates—it’s whether they can provide bullish 2026 guidance that justifies this massive capital deployment cycle continuing for another 12-18 months.
And here’s the crucial connection: For tech to deliver upbeat 2026 guidance, we need a strong economy. That AI infrastructure spending needs to translate into broader economic activity. The capital expenditures need to filter through the system, creating business opportunities, driving deal activity, and generating genuine economic momentum.
This is exactly why bank earnings matter so much.
Banks: Setting the Tone for Tech’s Future
Financial institutions will kick off earnings season, and their results will provide the critical economic backdrop that determines whether tech can credibly guide higher for 2026.
Next Tuesday, we’ll get our first major data points with JPMorgan and Wells Fargo reporting earnings. These two banking giants will set the initial tone for the entire earnings season.
Banks are the ultimate economic thermometer. Their quarterly results will tell us:
- Is deal activity accelerating? Investment banking and M&A revenue will show if businesses are confident
- Is the CapEx boom filtering through? Commercial lending data reveals if tech spending is creating broader economic opportunity
- Consumer health through credit card spending and loan demand
- Credit quality through delinquency rates and loan loss provisions
- Interest rate impact on net interest margins
If banks deliver strong earnings showing robust economic activity, it validates the environment where tech can confidently guide 2026 higher. If they stumble, it undermines the entire narrative that AI spending is creating sustainable economic growth. Strong bank results set the stage for tech to push stocks to new highs. Weak bank results put a ceiling on how bullish tech can be about next year.
It’s worth noting that XLF, the Financial Select Sector SPDR ETF, is trading near all-time highs. A breakout to new highs in XLF would be tremendously bullish news for tech bulls—it would signal that the financial sector is confirming economic strength, providing the foundation tech needs to justify aggressive 2026 guidance.
- Data center capacity remains a critical constraint
- Accelerated computing requirements continue to surge
- Enterprise AI adoption is broadening beyond early adopters
- Generative AI applications are moving from experimentation to production
This isn’t a bubble ready to pop—it’s an expansion cycle in its early innings. But for that cycle to continue accelerating into 2026, we need confirmation that the massive AI investments are creating real economic activity beyond the tech sector itself. Banks will provide that confirmation—or sound the warning bell.
Gold: Time to Rebalance, Not Chase
I’ve been bullish on gold for years, and that position has paid off handsously. But just because something has worked doesn’t mean you should chase it at these levels.
Gold has had a remarkable run, and while I still love it as a long-term portfolio component, now is the time to rebalance your gold positions, not initiate new ones. As I detailed in Monday’s article about market bubbles, when everyone is talking about something as an obvious trade, it’s usually time to be cautious.
Volatility: The Better Hedge Today
If you’re looking for portfolio protection right now, there’s a better opportunity than chasing gold at elevated levels: volatility.
Post-COVID, volatility metrics are sitting at the low end of their range. This presents an attractive entry point for hedging strategies. While gold has already priced in significant uncertainty, volatility remains relatively cheap. It’s a classic case of buying insurance when it’s affordable rather than when you need it.
This is precisely the type of environment where strategies like the Rational Equity Armor Fund are designed to add value—providing downside protection when volatility is cheap while maintaining equity market exposure.
Critical Questions for Q4
As I outlined in last week’s Q4 preview, there are several critical questions heading into the final quarter of 2025. Bank earnings can start answering those questions immediately:
- Is consumer strength real or artificial? Bank lending data and credit quality will tell us.
- Are businesses confident enough to invest? Commercial lending activity provides the answer.
- Has the Fed engineered a soft landing? Net interest margin trends and credit provisions will reveal the truth.
The Bottom Line
The market is “priced for strength,” meaning expectations are elevated across the board. Q3 is expected to deliver 8.0% year-over-year earnings growth for the S&P 500, driven heavily by the Technology sector’s estimated 20.9% growth rate.
But here’s the reality: good enough might not be good enough. With estimates elevated and positive guidance at record levels (50% of S&P 500 companies versus a five-year average of 43%), the risk of a pullback on merely “good” results is real.
Bank earnings will set the tone for everything that follows. They’ll provide the first real data on whether the economy has the momentum to support bullish 2026 guidance from tech. If banks show robust deal activity, strong lending, and healthy credit quality, tech has the foundation to guide aggressively higher and push stocks to new highs.
But if banks reveal a slowing economy—weakening loan demand, cautious business activity, or deteriorating credit metrics—it’s going to be very hard for stocks to go much higher, regardless of how exciting the AI story sounds. You can’t have tech guiding up for 2026 if the underlying economy is losing steam. The AI hype will run into the reality check of economic fundamentals.
Tech will get the headlines, but banks will get the first word. Watch the financials closely. They’ll tell you whether this rally has the economic foundation to continue—or whether we’re about to hit a ceiling that no amount of AI enthusiasm can break through.
