This Week’s Big Bank Earnings Give Clues About the Economy

Bank earnings are "one way to take the temperature" of the economy, says one analyst.

Sometimes a cigar is just a cigar, according to Freud. But bank earnings announcements are always about more than their stocks alone.

That’s why Wall Street anxiously watched Citigroup’s earnings report Monday morning. Even though profits and revenue beat estimates, shares were down about 0.4% as of midday.

Bank stocks are considered bellweathers, and parsing the details contained within quarterly earnings reports can provide clues about where the broader economy is heading. “We spend a lot of time evaluating the health of bank stocks,” said Marc Rappaport, CEO of DCM Advisors, “as it’s one way to take the temperature of the economy.”

Banks make profits when they lend money and charge fees. The higher their profits, the more they have available to lend, whether to companies borrowing to expand their business or consumers to finance purchases. Either way, the result helps grow the economy. The opposite is true as well.

“Are we seeing loan growth?” Rappaport said. “Do the numbers give insight as to the stress on borrowers—are delinquencies rising? Are default rates holding steady? It’s a big sector to watch, about tied with health care as the second-biggest sector in the S&P 500 after technology and the top sector weight in the closely watched Russell 1000 Value [ETF from Vanguard].”

Citigroup’s results were mixed. “Initially it looked like Citi crushed it, but [that was due to] that pretty sizable Tradeweb Markets IPO for $350 million in revenue,” said Jacqueline Reeves, managing director at Bell Rock Capital. Tradeweb is a trading platform vendor that had a $1.1 billion IPO earlier in 2019 and Citigroup helped lead the offering.

“Excluding that, they still exceeded expectations but some of their underlying revenue items were a little light,” including equity and fixed income trading, Reeves said. That could be an indicator of investors pulling back.

“Notably, they showed an escalation of credit card delinquencies that could signal marginal degradation in consumer’s fortunes but could also reflect Citi’s aggressive credit card solicitations a few years ago,” said Andrew Aran, a partner with Regency Wealth Management. In other words, either Citi tried to expand its credit card activity to riskier profiles, or there may be trouble brewing up and down Main Street.

In addition, “corporate tax rates have decreased because of the 2017 tax act, so a lot of these banks are seeing pickup because of the lower effective tax rates,” said Timothy Speiss, a partner and co-lead of the personal wealth advisor’s group at EisnerAmper. Investors may be discounting some of the profits as the result of the legislation and not improved business or economic conditions.

Monday was only the beginning of bank earnings. More important will be Tuesday with earnings announcements from J.P. Morgan Chase, Goldman Sachs, and Charles Schwab. “Tomorrow will be a bigger information day into what we can read from their earnings and even their commentaries from senior management,” Reeves said.

And you can take that to the bank.

More must-read stories from Fortune:

—Meet the A.I. landlord that’s building a single-family-home empire

—You might have longer than you think to invest for retirement

—Will the Fed cut interest rates to prevent recession? 6 predictions

—Schwab’s ‘Project Bear’ uses A.I. to predict when investors are getting nervous

—When the next recession hits, four good things could happen

Don’t miss the daily Term Sheet, Fortune‘s newsletter on deals and dealmakers.