Trump's Tariffs: Why the Trade War Isn't Over for America's Biggest Banks

There is a difference between a pause in the fighting and a cease-fire. When it comes to the trade war, that really matters for the biggest U.S. banks.

- Jonathan Weil

President Trump's about-face on tariffs Wednesday brought the big banks instant relief after days of intense pain—shares of the big six U.S. banks all soared.

While the move was understandable, banks aren't out of the woods yet. Retaliatory tariffs remain in place against China, the U.S.'s third-largest trading partner. Those could still cause economic dislocation and possibly inflation, which might keep the Federal Reserve in check for some time. Other tariffs are on hold, but only for 90 days.

So investors will still be on edge Friday when banks' earnings season kicks off. Bellwether JPMorgan Chase leads the charge on first-quarter results, and chief Jamie Dimon's economic and business commentary will hold more weight than ever. Wells Fargo and Morgan Stanley also report that day, while the following week brings results from Bank of America, Citigroup and Goldman Sachs.

Generally, the first-quarter results will be noted but won't matter much. Investors want to know what the outlook is, and if it is even possible to gauge what comes next.

Recession risks are rising but are less acute than when the world was being subjected to the full extent of Trump's tariffs. This means concerns remain around banks' credit risks, or the possibility lenders won't get repaid in full on loans and bondholdings.

Market risks, known and unknown, haven't really diminished, either. Sudden shocks have a way of causing jarring blowups in unforeseen ways, such as the collapse of hedge fund Long-Term Capital Management after Russia's surprise debt default in 1998.

Market volatility can do wonders for revenue on a big bank's trading desk, until it gets so out of hand that liquidity dries up.