Several of the big banks will kick off earnings season on Friday. Whalen Global Advisors Chairman Chris Whalen joins Yahoo Finance Live to preview what investors should look for from banks' results.

Whalen notes bank profit trajectories have stalled, going "sideways for four quarters" now, constrained by credit dynamics amid recession risks. He believes the main question is: "Are we gonna get net income to go back up?"

Whales names JPMorgan (JPM) as "a safe stock to own," though it has a high valuation. Meanwhile, Whalen tags Wells Fargo (WFC) as "most improved" among the "big four" heading into reporting season. On the flip side, he identifies Citi (C) as the "underperformer."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Angel Smith

Video Transcript

JOSH LIPTON: With earnings season set to kick off tomorrow, JP Morgan, Bank of America, Wells Fargo, and Citi all ready to report their latest results. Investors waiting to get the latest read on the banking sector with questions about loan growth, dealmaking, and capital markets activity. Here to discuss what to expect, we have Whalen Global Advisors chairman, Chris Whalen. Chris, it is always great to have you on the show.

So you know, you look at these bank names, Chris, investors have been piling in. If you just looked at the KBW, if you pulled that back since early November, they've been rushing in there feeling optimistic, I guess, about the Fed pivot, about, I guess, the chance of a soft landing. What are you looking for tomorrow, Chris? What do you expect to hear?

CHRIS WHALEN: I think the big question is, are we going to get net income to go back up? It's been going sideways for four quarters. Last quarter was a little better because credit expenses were down. That's why the stocks ran in my view.

And then the pivot helped in December. Obviously, many financials were in, including Fannie Mae and Freddie Mac, by the way, the two best performing mortgage equity stocks in the US in 2023. Isn't that remarkable?

JULIE HYMAN: Yes.

CHRIS WHALEN: Their earnings are not doing anything and their expenses are going up this year. I think banks are also going to be looking at credit. The bond market rally helps a lot because now they can sell stuff that they would like to get at low coupon securities and loans from 2021. So you'll see more of that in the fourth quarter cleaning house.

And I think ultimately, it really revolves around credit if credit starts showing an increase. And you heard Jamie Dimon, he's pretty bearish. I would bet you that JP is going to be taken up credit provisions in the fourth quarter because he's talking recession now. And I think that's something we should pay attention to.