Large U.S. banks generally had a strong first quarter with rising loan activity, robust investment banking, increasing revenue, strong earnings, and stable or benign credit conditions.
Yet the solid results didnʻt do much to raise the needle for bank stocks. In fact, many of them ticked lower post-earnings. The KBW Nasdaq Bank Index, which tracks the largest banks, is down about 2% over the past month and is in negative territory year-to-date.
This pessimism from investors is most likely related not to Q1 earnings results but to what could happen in the second half of 2026. Specifically, many experts point to deteriorating credit conditions in the second half of the year.
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The American Bankers Associationʻs first-quarter Credit Conditions Index signaled that credit conditions will likely deteriorate over the next six months. Its Consumer Credit Index was worse, dropping 1.7 points in Q1 to 33.3. Anything over 50 means credit conditions are improving, while a score below 50 means they are deteriorating. The Business Credit Index was in much better shape, with a score of 41.7, up 1.7 points in Q1.
Worsening credit conditions could slow loan growth, reduce net interest income, and lead to higher loan-loss provisions, thereby dragging on earnings. Indicators like job growth, gross domestic product, and inflation will affect credit conditions.
Best banks for your buck
The uncertain and tenuous state of the economy and credit environment decidedly favors the larger banks for several reasons. One, they serve more businesses and higher-net-worth individuals than smaller banks, so their clientele will not be hit as hard by economic headwinds. Two, they have a broad array of services, including investment banking, wealth management, and institutional trading, which can help offset any weakness in consumer lending.
NYSE: JPM
Key Data Points
With interest rates not expected to drop more than once this year, a higher-for-longer rate environment will favor larger banks. It will allow them to maintain higher loan rates and fairly low deposit yields, as customers tend to flock to larger banks as safe havens during uncertain markets.
Considering these factors, investors may find the best banks to invest in right now are the two largest, JPMorgan Chase (JPM 0.19%) and Bank of America (BAC 1.20%). Both of these firms will likely generate higher net interest income in 2026, with JPMorgan Chase targeting an 8% increase from 2025 and Bank of America projecting a 6%-8% rise. Both banks also have strong balance sheets, with high liquidity and capital buffers, to help them navigate a softening in the credit environment.
NYSE: BAC
Key Data Points
JPMorgan Chase and Bank of America stocks trade fairly cheaply at the moment, with JPMorgan Chase trading at 13 times forward earnings and Bank of America at 11 times forward earnings. Wall Street targets both as consensus buys, with JPMorgan Chase stock expected to increase 16% and Bank of America stock projected to rise 24% over the next 12 months.
In a time of economic uncertainty, these two banks should be able not only to navigate the choppy waters but also to catch some tailwinds.
