For a number of quarters, Canadian banks had a consistent track record of either meeting or exceeding earnings expectations. That ended this week.

That’s not to say the banks are in serious trouble, but relative to expectations supporting recent valuations, most banks fell short and have sold off as a result.

Read: CIBC misses expectations, names chairman

Prior to the release of the reports this week the general consensus was that personal and commercial (retail) banking would be fairly flat; wealth management operations would probably be neutral; and wholesale/capital market businesses could be impacted by the volatility we saw in the second half of the fiscal fourth quarter. For the most part the consensus was right; however, there were signs of weakness among the core banking franchises and some of the capital markets results were worse than expected.

While personal and commercial business segments did manage to see some loan and deposit growth year-over-year, we also commonly saw discussion concerning higher non-interest costs, flat or slightly declining revenue or net interest margin compression (essentially the profit they make off of interest rates).

Admittedly, some CEOs have been trying to bring market expectations lower over the past year and a half, arguing the operating environment was going to become more challenging. For most of this year those warnings fell on deaf ears as results were normally better than expected; but the market has now woken up, recognizing 2015 may be more challenging for the retail business.

Read: RBC has record Q4 profit

With respect to the wholesale/capital markets business, we did see sequential declines in profitability from last quarter, due mainly to volatile markets in September and October. Trading revenues, underwriting fees and investment banking fees were impacted as a result and in some cases worse than what the market expected.

That said, these business lines are always the most volatile within a bank’s earnings, as they tend to move with the volatility of the market. So, we shouldn’t read too much into one quarter’s results in an attempt to determine what will happen in the year ahead. In many cases, banks can miss expectations only to rebound the following quarter on the back of stronger markets.

So, the market was correct about the direction these businesses were going in Q4, but underestimated the magnitude of the market impact.

Read: TD’s Q4 results fall short of expectations

With respect to loan loss provisions, for the most part they did increase for most of the banks from last quarter, but the magnitude of the increase was not large enough to cause a great deal of panic, so we are not overly concerned by the upward pressure for the time being.

Finally, on the dividends front we saw increases out of Bank of Montreal, CIBC and National Bank. We hoped to see an increase from TD Bank, but it appears TD’s looking to move away from semi-annual dividend increases and bump their dividend once a year instead. As such, the next dividend increase is expected three months from now when they report their fiscal first quarter earnings. Regardless of TD’s inability to raise its dividend for the past couple of quarters, it’s dividend increase track record remains one of the best within the bank group over a number of different periods.

Read: BMO misses Q4 expectations

In conclusion, it was a quarter the market would label as disappointing for the Canadian banks, but we should emphasize that disappointment is relative to expectations, and that some of the results in absolute terms were still reasonable.

However, expectations have now been lowered going forward which has put downward pressure on stock prices. Unless we see a material pickup in broader economic growth over the next three months (which is unlikely), the market will now likely adopt a wait-and-see approach with Canadian banks for the next quarterly earnings released in February.

Read: Scotiabank’s Q4 profit drops 14%

Gareth Watson is the Vice President, Investment Management & Research at Richardson GMP in Toronto. This team of research experts is responsible for monitoring and interpreting economic, geo-political situations, current market environments and trends.