The biggest US bank stocks have soared over the past six months, outpacing the S&P 500’s gains. But whether they can maintain that momentum is the big question entering earnings season.
Investors will be scrutinizing first-quarter results from the likes of JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co. and Citigroup Inc. over the coming days just as prospects of imminent interest-rate cuts dim. Since hitting a trough in October, the group has soared past the broader market’s gains.
“You don’t typically see banks outperform the broader market these days,”said Piper Sandler analyst R. Scott Siefers. “Unquestionably, the bar is higher.”
A year ago, banks were under pressure following the sudden collapse of Silicon Valley Bank in March, which set off tumult across the regional bank space and eventually dragged down two other lenders. Concerns about deposit flows rattled the industry, putting investors on tenterhooks and pushing stocks to levels that were “priced for catastrophe,” as an analyst put it then.
Now, investors will be closely watching banks’ outlook and commentary around key profit drivers like net interest income and investment banking.
Fewer interest rate cuts could bolster net interest income prospects for many large-cap banks and lead to upward guidance revisions, according to Morgan Stanley analyst Betsy Graseck.
BofA Global Research’s Ebrahim Poonawala expects results to “validate” the outperformance this year and said the biggest banks are “well positioned to navigate an uncertain (higher for longer) macro backdrop.”
In his recent annual letter to shareholders, Chief Executive Officer Jamie Dimon warned that he views the odds of a soft economic landing as being a “lot lower” than what the market seems to be pricing in.
JPMorgan, Wells Fargo and Citigroup will kick off the reporting season Friday, while Bank of America will report next week along with Goldman Sachs Group and Morgan Stanley.
Meanwhile, shares of smaller lenders have been under pressure since the regional bank tumult last March. After bouncing off an October nadir, the group was weighed down by New York Community Bancorp Inc.’s earnings shock last quarter.
Concerns over rent-regulated multifamily housing in New York following NYCB has created buying opportunities in the stocks of some local lenders, according to Keefe, Bruyette & Woods analysts.
More broadly, it’s brought concerns over asset quality — commercial real estate in particular — back to the fore for investors.
Ultimately, regional bank results will come down to how NYCB, which is expected to report later in the season, can handle questions over its credit issues and capital, according to Bloomberg Intelligence analyst Herman Chan. Asset quality is a key uncertainty for the group, and net interest income appears “tepid.”
“Profits at the biggest US banks have been buoyed by healthy trading and improving capital markets, while regional counterparts face worries over credit quality and weak balance-sheet growth,” he wrote in a note.
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