Optimism about US banks is about to be tested.
Investors ended 2024 on a positive note about US banks. What happened at the start of the earnings season this week will put optimism in 2025 to a new test.
The stock of America’s biggest lenders has rallied following the election of Donald Trump, hoping a new Republican administration will loosen some rules and approve corporate mergers that would bring big profits to Wall Street giants.
But as investors await fourth-quarter and 2024 full-year results this Wednesday and Thursday from some of the biggest names in the industry, those same stocks are starting to tip.
“Any sector, any stock that’s going to go a long way in the short term had better provide the fundamentals to justify that kind of movement,” Steve Sosnick, chief strategist at Interactive Brokers, told Yahoo Finance.
The nation’s largest bank, JPMorgan Chase ( JPM ) reported on Wednesday a record expected second straight year of profit, and fourth-quarter earnings rose from a year earlier.
Analysts also expect Bank of America ( BAC ), Wells Fargo ( WFC ), Citigroup ( C ), Goldman Sachs ( GS ), and Morgan Stanley ( MS ) to all post year-over-year earnings increases for 2024 and the fourth quarter. – Before season.
Not all of the results have been so positive, however. These large banks are expected to show lower profits in the fourth quarter compared to the third quarter of 2024.
Most investors pay close attention to any outlook for the coming year due to the unpredictability of inflation, the US economy, the policies of the incoming administration and interest rates.
A tepid December jobs report, signs of persistent inflation and expected trade policies from the new administration had many Wall Street strategists convinced the Federal Reserve would cut interest rates further for now — and the door was open to the possibility of a rate hike in 2025.
Read more: How Fed tapering will affect your bank accounts, loans, credit cards and investments
In the year There is a bull case for how banks will fare this year following the Fed’s overall rate cut percentage point in 2024. It’s still high enough to ensure that big lenders can get healthy loan margins, but they’ve come down. It is enough to provide some relief to some bank borrowers.
Business is booming as companies are issuing debt at a faster rate and initial public offerings are on the rise. And the Trump administration is expected to scrap proposed capital rules that would hamper future gains.
