As one of the best performing sectors of 2017, it remains to be seen whether US bank stocks can get anywhere near that kind of performance in 2018.
However, so far the portents are good, with US banking results and trading updates indicating the sector will be one the key long-term beneficiaries of US tax reforms, and the move to cut the top rate of US corporate tax from 35% to 21%.
US bank stocks rose by over 20% in 2017 as a rising interest rate environment together with buoyant economic growth boosted profitability for retail banking.
However, it´s been a mixed picture for the investment banking sector, where low volatility has crimped the revenues from the trading segment, especially in fixed income.
Further US interest rate tightening in 2018, with the Federal Reserve expecting to hike rates on three occasions in 2018, in common with the three hikes seen in 2017, could well boost profitability further for the retail banking operations this year.
Until Wednesday, pretty much all the big US banking stocks had made further upward progress, though against the backdrop of a strongly rising overall market.
The major weakness in the picture are the trading divisions of investment banks. A so-called goldilocks scenario, of subdued inflation combined with buoyant global growth, is not good news for everyone it seems.
Investment banking names like Goldman Sachs have had to put up with a big fall off in revenue from their trading divisions, as volumes have dried up against low volatility.
On Wednesday, Goldman beat fourth-quarter earnings and revenue forecasts overall.
A major disappointment, however, was news that revenue from its trading division had dropped by 50% compared with the same quarter of 2016. The shares were down by 2.8% as at 1700 GMT on Wednesday.
A one-off hit to the bottom line of $4.6bn due to US tax reform corresponded with what Goldman had told the market to expect last year.
Goldman repeated the familiar short-term-pain-for-long-term-gain tax reform story, pointing to the longer-term benefits of a lower effective tax rate for the bottom line in the coming quarters.
The one-off hit from tax reform saw Goldman report its first quarterly loss since 2011, at $1.93bn.
It was however the dismal performance from fixed income trading that grabbed the headlines and shook the shares.
Investors also seemed unimpressed with Bank of America´s (BoA) fourth-quarter results, another banking name to report on Wednesday.
The shares were down 0.8% by 1700 GMT on Wednesday.
As with Goldman, it was the poor performance in trading that got investors worried.
Though in BoA´s case, the saving grace was that it was able to point to an 11% increase in net interest income as the retail banking arm of the business benefits from higher interest rates along with loan and deposit growth.
BoA said trading revenues from its investment banking business had slumped 15%, with weakness again concentrated in fixed income.
Overall, it was a decidedly mixed picture for BoA. While quarterly earnings beat analysts´ expectations, adjusted revenue disappointed forecasts.
BoA also reported a one-off tax related charge of $2.9bn to the bottom line, with the proviso that the tax changes would boost earnings in future quarters.
While it could appear the market is taking an overly pessimistic tack on BoA´s results, especially as the retail side of the business is doing better, it´s worth remembering that these shares saw a big increase in 2017.
Over the past year, the shares have climbed by around 40%, making BoA one of the sector´s best performers.
This compares to a rise of just 6% for Goldman Sachs, which has been weighed down by lacklustre performance from its trading division, especially as it does not have a retail banking business like BoA to counteract some of the weakness.
The market, however, appeared a little bit more forgiving of JP Morgan Chase last Friday when it reported a 34% year-over-year decline in revenue from fixed income trading, citing low volatility and tighter credit spreads.
The investment bank reported fourth-quarter earnings of $4.2bn, a 37% fall on the prior period due principally to a one-off hit of $2.4bn from the Tax Cuts and Jobs Act (TCJA).
Despite the weakness in the trading division, in common with Goldman overall earnings and revenue beat analysts´ forecasts for the quarter.
At the same time, there was a warning flashing from the shadows of JP Morgan´s quarterly report.
JP Morgan reported a mark-to-market loss of over $140m on a margin loan made to a single individual, thought to be Christo Wiese, the billionaire backer of South Africa-based Steinhoff International.
While this is not too much to worry about on its own, this does hint at what could be lurking around the not too distant corner for investors in banking stocks, especially when global growth and corporate prospects do finally begin to deteriorate.
For now at least, this should not be too much of a concern, especially as the global economy is still accelerating and prospects for business in general still look good.
Stocks like BoA should continue to benefit from rising interest rates, with the US economy likely to step up another gear in 2018 as the tailwinds from tax cuts filter through.
On the flip side, any increase in volatility in financial markets could be a big opportunity for names like Goldman to improve the performance of their trading divisions.
This could be the case if we see an uptick in geopolitical tensions in 2018, or indeed a major upward move in inflation.
The subdued nature of inflation in key markets such as the eurozone and US was a key reason why global bond markets enjoyed such low levels of volatility in 2017.
Low volatility can be good news for long-term investors, as evidenced by the recent strong results for US investment manager Blackrock.
It is, however, not so good news for investment banking businesses that tend to profit from higher volatility across capital markets.