Goldman Sachs just told its clients to buy more stocks. Tomorrow morning, Goldman and three rival banks worth $1.6 trillion open their books, and that bet faces its first test.

The banks report before Tuesday’s opening bell. Goldman is one of them. So the firm making the call is also one of the companies that has to back it up.

Why Is Goldman Suddenly So Confident?

Strategist Christian Mueller-Glissmann’s team raised stocks to overweight, meaning own more than usual, for the next three months, Bloomberg reported. Bonds got the same upgrade over 12 months.

The logic is that stocks got cheaper as oil and bond yields climbed. Profits did not. Analysts expect S&P 500 earnings to jump 25% this quarter, per Bloomberg Intelligence, and Goldman expects companies to beat that.

What Do the Banks Have to Prove?

Citigroup and JPMorgan carry the highest expectations, with analysts forecasting profit per share to rise 19% and 17% from a year earlier.

Wells Fargo and Goldman Sachs face lower bars of 7% and 5%, according to Nasdaq consensus estimates.

Bank earnings consensus EPS for JPMorgan, Goldman Sachs, Citigroup and Wells Fargo. Source: Nasdaq

All four banks report before Tuesday’s opening bell, so Goldman’s own results will be out the morning after it turned bullish.

If the banks deliver, strong results paired with steadier interest rates could help stocks outside the tech sector start to perform.

If they fall short, one company missing forecasts can be shrugged off, but a pattern of misses would weigh on the whole market.

Bonds are Goldman’s backup plan either way. Its strategists said bonds should shift from dragging on portfolios to protecting them.

Why Are Some Investors Not Buying It?

The S&P 500 sits near records. Most stocks do not. Barclays data shows more than half of S&P 500 companies are at least 20% below their highs.

Investor Steve Weiss expects banks to cheer new stock listings but stay wary on mergers, because borrowing is expensive.

“I don’t think it’s a slam dunk quarter as everybody’s, you know, intimating,” said Weiss on CNBC.

Money manager Jenny Harrington says the market’s reaction may matter more than the results.

“The behavior will be more telling than the actual data,” Harrington indicated.

Interest rates hang over everything. Bond yields sit near a 24-year high, and KBW’s Tom Michaud says bank stocks stay pressured until rates settle.

US inflation data lands Wednesday.

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