What Last Week's Earnings Really Tell Us About the Market Ahead

• Banks like JPMorgan, Wells Fargo, and Citigroup beat earnings but declined as investors focused on future margin compression from expected rate cuts and JPMorgan's expense jump to $105 billion (from $96 billion)
• TSMC's capex increase and CEO's direct validation that 'AI is real' triggered immediate rallies: TSMC +6%, ASML +7-8%, and Nvidia +3.2%, signaling sustained AI infrastructure demand
• Investment banks outperformed traditional banks, with Morgan Stanley's investment banking fees up 47% and Goldman Sachs posting record trading revenue, highlighting that exposure to growth-driven capital markets activity commands a premium

Market Summary: Early 2026 Earnings Preview

Key Takeaways

Last week's earnings from major banks and Taiwan Semiconductor (TSMC) revealed that investors are prioritizing growth narratives over solid but stable results in early 2026.

Banking Sector Performance

Major banks including JPMorgan (JPM), Bank of America (BAC), Wells Fargo (WFC), and Citigroup (C) beat earnings expectations but saw shares decline 3-5%. Despite strong loan activity, investment banking fees, and trading revenues, investor concerns centered on:

• Rising expenses (JPMorgan's costs jumping to $105 billion from $96 billion)
• Regulatory uncertainty around credit-card rate caps and capital requirements
• Expected Fed rate cuts compressing future net interest margins
• Wells Fargo fell 4.6% despite beating earnings, due to revenue miss and $612 million in layoff costs

Investment banks outperformed: Goldman Sachs (GS) and Morgan Stanley (MS) rose 4.6% and 5.8% respectively, with Morgan Stanley's investment banking fees up 47%.

Semiconductor Sector Catalyst

TSMC's results dramatically shifted market sentiment

• Profit increased 35% year-over-year
• Capital expenditure guidance of $52-56 billion for 2026 (up from $41 billion in 2025)
• CEO confirmed AI demand is "real" after direct consultation with cloud providers
• TSMC shares surged 6%, ASML rose 7-8% (crossing $500 billion valuation), Nvidia up 3.2%

Market Implications

The S&P 500 showed negative performance overall (-2.06%), but AI-exposed stocks rallied strongly on credible growth visibility. With elevated valuations, companies must demonstrate forward momentum—backward-looking beats are insufficient. This earnings season will likely reward tech/AI expansion stories while penalizing sectors offering only stability.