By Aaron Back

Things feel different as U.S. banks gear up for another quarterly earnings season. For the first time in years, they face lofty expectations.

Bank of America, J.P. Morgan Chase, and Wells Fargo all report fourth-quarter earnings on Friday. Since the presidential election, their shares have been bid up by 25% on average as of midday Thursday. That means caution is warranted heading into earnings, but short-term choppiness shouldn't obscure a solid investment case.

Analysts expect per-share earnings in the period to rise by 36% from a year earlier at Bank of America, one the biggest beneficiaries of higher interest rates. They see earnings rising 7.6% at J.P. Morgan Chase and falling 2.9% at Wells Fargo, which benefits less than others from rising rates.

Even more important will be the banks' forecasts for 2017 and their commentary on the many trends expected to benefit them under a Trump administration. Besides higher interest rates, this includes expectations for financial deregulation, faster capital returns, lower taxes and more trading activity.

Little of this is knowable, much less quantifiable, at this point, but bank forecasts are worth watching in two particular areas.

On interest rates, many banks have outlined how much extra interest income they would earn if rates shoot upward across the board. Now they may begin to offer cautionary statements on offsetting effects, such as write-downs on securities and higher loan losses. Banks also could be more specific on their exposure to moves in short- versus long-term rates.

Trading activity is the second major variable to watch. This surged in the second half of 2016 after years of declines on events like Brexit and the U.S. election.

Investors will want to hear if banks expect this bump to fade away. Higher growth in the U.S., further Federal Reserve tightening, and continued uncertainty over Brexit could be a recipe for elevated trading volumes for some time.

The three banks reporting Friday now fetch an average of 14 times estimated 2017 earnings, compared with an average forward multiple of 11 times over the past five years, leaving their shares vulnerable to profit-taking if the news Friday is mixed. Bearish options bets on financial stocks have risen also in recent weeks, setting the stage for possible volatility.

But trends in rates and trading, to say nothing ofDonald Trump's policies, are likely to support bank valuations for the foreseeable future.

(END) Dow Jones Newswires

January 12, 2017 12:30 ET (17:30 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.