Shares of banking and financial services stocks are on the rise Friday, buoyed by better-than-expected third-quarter earnings from JPMorgan Chase Inc. (NYSE:JPM) and Wells Fargo Inc. (NYSE:WFC), which in turn sparked a rally in financial firms like Apollo Global Management Inc. (NYSE:APO) and Morgan Stanley Inc. (NYSE:MS).

What's Going On: The Financial Select Sector SPDR Fund (XLF) surged nearly 2%, hitting record highs. Investors are increasingly optimistic about firms like Apollo and Morgan Stanley, with expectations that these companies will benefit from the same favorable market conditions that propelled earnings beats at JPMorgan Chase and Wells Fargo.

JPMorgan's strong performance in investment banking, equities and fixed-income trading has set the tone for capital markets, giving Morgan Stanley—a peer in these areas—a similar outlook for robust revenues. Meanwhile, Apollo Global Management stands to gain from the continued strength in net interest income.

JPMorgan Chase reported $23.53 billion in net interest income, beating estimates and signaling strength in this critical revenue area. Wells Fargo, despite missing some top-line estimates, maintained strong cost management.

What Else: Higher interest rates are expected to be a continued tailwind for financial firms as they capitalize on rising interest income from their broad asset bases. Like their larger counterparts, these companies are well-positioned to leverage favorable rate environments, boosting both lending income and investment management operations.

Related:

• US Banks Top Q3 Earnings Estimates: JPMorgan Delivers 'Robust Beat,' Financial Sector Stocks Hit Record Highs

Key Metrics for JPMorgan Chase:

• EPS: $4.37 (beat the $4.00 estimate)
• Revenue: $43.32 billion (beat the $41.82 billion estimate)
• Net interest income: $23.53 billion (exceeded the $22.8 billion forecast)
• Full-year guidance for net interest income: Raised to $92.5 billion

Key Metrics for Wells Fargo:

• EPS: $1.42 (beat the $1.28 estimate)
• Revenue: $20.37 billion (slightly missed the $20.41 billion estimate)
• Net interest income: $11.69 billion (below the $11.88 billion forecast)
• Efficiency ratio: 64% (met expectations)

As the broader financial sector enjoys this rally, stocks like Apollo Global Management, up 1.02% to $139.32 and Morgan Stanley, rising 2.70% to $110.99, reflect the confidence investors have in the continued strength of financial services. Bank of America Inc. (NYSE:BAC) is also riding this wave, jumping 5.27% to $42.08.

JPM and WFC Price Action: JPMorgan shares were up by 4.60% at $222.68 and Wells Fargo shares were up by 6.02% at $61.23 at the time of writing, according to Benzinga Pro.

Image Via Shutterstock.