Major financial institutions — including JPMorgan (JPM) and Wells Fargo (WFC) — kicked off the third quarter earnings season this morning. While these banks outperformed expectations, the potential impact of future Federal Reserve rate cuts on these financial giants remains a key concern. Hennessy Funds portfolio manager David Ellison, joins Market Domination to share his outlook on the situation.

Ellison notes that, fundamentally, bank earnings aligned with investor expectations. However, he emphasizes a significant shift: "The mathematics of the business is working in their favor for the first time in a while," as banks grow equity, buy back stocks, and see tangible book values increase. Furthermore, he points out that as banks like JPMorgan see their balance sheets expand, "the banks are becoming a much bigger part of how the Fed is going to fund the government," which creates additional value for these major financial institutions.

"Those are the things that I see: the Fed is shrinking, the banks are getting bigger, and because of that, they're becoming more important and more profitable," Ellison tells Yahoo Finance.

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This post was written by Angel Smith