Net Net: Promoting innovation and managing change
Net Net: Promoting innovation and managing change

Banks to kick off another sloppy earnings season

Goldman's top earnings plays

Forget Alcoa: Banks are the new barometer when it comes to the outlook for corporate profits.

Since its exit from the Dow Jones industrial average, the aluminum giant's report no longer is the unofficial earnings season kickoff, nor is the company considered a particularly reliable indicator of broader business trends.

Instead, it is the banks, particularly the Big Four—JPMorgan Chase, Bank of America, Wells Fargo and Citigroup—that are looked to as bellwethers.

With that in mind, the second quarter is turning into one that Wall Street and investors would like to forget.

earnings on the whole are expected to decline 4.4 percent from the same period a year ago, according to the latest estimates from S&P Capital IQ.

In the first quarter, companies in the index posted a more than 3 percent gain, which doesn't sound like much on the surface but came amid expectations heading into the season that profits would decline more than 3 percent.

One of the saving graces was financials, which were the second-best performing of the S&P 500's 10 sectors with gains of more than 13 percent. This time around, though, the group is expected to play less of a leadership role. Projections now are for a 5 percent gain, which would place it fourth best.

A Bank of America branch in New York.
Scott Mlyn | CNBC

The large and regional banks alone are expected to show earnings growth of more than 7 percent, which would be a bright spot within the industry. But analysts at financial services firm Keefe, Bruyette & Woods question that number.

"The consensus view of 7.3 percent sequential-quarter EPS growth seems too high to us given the macro environment has not materially changed, with margins still coming under modest pressure, overall loan growth not hitting on all cylinders and no material fee income catalysts," KBW said in a note to clients.

Read MoreGoldman's 4 ways to cash in on earnings season

However, that may not necessarily hammer bank stocks, which have outperformed this year. The KBW Bank Index has gained about 3 percent in 2015, compared to a decline of 0.4 percent for the S&P 500.

Analysts generally believe banks will be helped by a rising interest rate environment combined with the winding down of steep litigation costs related to the financial crisis.

"Despite our expectations for another lackluster quarter of results, investors appear to be more interested in earnings one to two years out on the 'promise' of higher net interest margins tied to the eventual increase in interest rates," KBW said. "This seems to be a very consensus view at the moment."

Indeed, Goldman Sachs projects that net interest margin compression should "moderate" in the quarter, which could "offset the negatives" in a quarter likely to show "mixed trends."

In an earnings preview, the firm's analysts said bank shares are likely to overcome a variety of earnings headwinds, with "rising estimates and favorable valuation (pushing) stocks higher ahead of a rate hike."

Read MoreDick Bove says these 5 banks will beat the market

In the large-bank universe, Goldman said it favors Citigroup, Regions Financial and Bank of America and is "above consensus" on BB&T. In the universal banks, Citiroup is the only one KBW rates as "outperform."

JPMorgan kicks things off Tuesday morning. KBW expects the company to show earnings of $1.39 a share, off consensus of $1.44 and representing a year-over-year decline of 5 percent.

Wells Fargo also will report that morning.