Some of the largest U.S. banks are set to report their year-end earnings with significantly higher profits with solid consumer spending, rising stock prices, and increased trading activity. JPMorgan Chase, Wells Fargo, Citigroup, Goldman Sachs, Bank of America, and Morgan Stanley are among those releasing their earnings this week, with analysts expecting healthy profit growth compared to the previous year. However, these gains are partly due to one-off payments made to the Federal Deposit Insurance Corporation (FDIC) in 2023, which impacted earnings that year. Aside from the expected year-over-year increase, analysts predict a modest decline in profits from the third quarter, primarily due to lower fee income, flattening net interest margins, and higher expenses.
Investors will closely monitor the earnings reports for any adjustments in annual guidance, particularly in light of the December jobs report and the stratagem to navigate Trump policy. A resilient U.S. economy and higher interest rates have supported bank profits thus far, but they also pose a risk, such as increased borrowing costs for clients and interruptions in deal-making activities. The pickup in mergers and acquisitions, promoted by lower interest rates in the fall, is expected to boost investment banking revenues, with Jefferies' recent earnings serving as a positive indicator for the larger banks.
As earnings season kicks off, market participants will also watch for signs of loan growth, which has been weak in recent quarters due to high interest rates. Analysts like Kenneth Leon from CFRA Research anticipate positive loan growth and moderate gains in net interest income, supported by a strong economic backdrop. The performance of these banks could set the tone for the broader market, with their stocks already reflecting optimism about future growth under a new U.S. administration. However, any negative surprise in the earnings reports could lead to high market volatility, given the current expectations could have been priced into bank stocks.
Source: Reuters, FRED, FT, Barrons
Photo: Unsplash
