NEW YORK (Reuters) - Profits at some of the biggest U.S. lenders rose in the fourth quarter as dealmaking picked up and trading was boosted by strong equity markets, sparking a rally in banking stocks on Wednesday.

The market environment has been favorable for banks. Equity markets have surged, with the S&P 500 climbing 23.3% in 2024, while deal volumes have risen and strong demand for bond underwriting boosted investment-banking fees.

Shares among the banks that reported earnings on Wednesday rose between 5.9% for Goldman Sachs ( GS ) and 0.9% for JPMorgan Chase ( JPM ). Bank of America and Morgan Stanley will report results on Thursday.

"Animal spirits are back," said Stephen Biggar, banking analyst at Argus Research, referring to the tendency for investors' emotions to drive stock prices. "There are good times to be over-exposed to capital markets revenues, and this is one of them."

Goldman Sachs ( GS ) recorded its biggest quarterly profit since the third quarter of 2021, at $4.11 billion, helped by deal fees, debt sales and trading. Its fourth-quarter global banking and markets revenues rose 33.4% year-over-year and the bank posted record net annual revenues in equities.

The bank said in a statement its prospects for investment-banking fees were greater in December than they were in September, offering an optimistic outlook for the coming months.

JPMorgan Chase ( JPM ) posted a roughly 50% rise in net income as both investment banking fees and trading revenues jumped in the last quarter, with CEO Jamie Dimon hopeful of more favorable conditions to come.

The earnings reports come days before Monday's inauguration of President-elect Donald Trump, who has promoted an agenda of deregulation and lower taxes. Lighter regulation could spark an uptick in dealmaking, boosting banks' fee revenues.

"Businesses are more optimistic about the economy, and they are encouraged by expectations for a more pro-growth agenda and improved collaboration between government and business," Dimon said in a statement.

A rebound in dealmaking drove Wells Fargo's ( WFC ) profit 47.3% higher, to $5.1 billion, as its investment-banking fees jumped 59% to $725 million in the quarter compared with a year earlier.

Citigroup's ( C/PN ) quarterly profit beat estimates, helped by more trading and deals. Its investment-banking revenue soared 35% to $925 million.

2025 OUTLOOK

The possibility of softer regulation under Trump may help improve banks' performance. Michael Barr, the Federal Reserve's top regulatory cop, announced this month he will resign. His exit clears the way for Trump to appoint an official with a more industry-friendly agenda.

Analysts were eager to hear more from bank executives about the outlook for investment-banking and net interest income, which is the difference between what banks earn from loans and what they pay for deposits. Investors expect the Federal Reserve to cut interest rates.

Wells Fargo ( WFC ) and JPMorgan ( JPM ) reported drops in NII in the fourth quarter. Still, Wells Fargo ( WFC ) projected that NII would begin to increase again in 2025, boosted by a pickup in loan demand and lower deposit costs, while JPMorgan ( JPM ) forecast NII at a higher level than analysts had projected.

Banks said overall, the U.S. economy is in good shape, helped by strong consumer spending.

"The U.S. economy has been resilient," Dimon said.