(Bloomberg) — Wall Street banks’ outlook for the year will be in the crosshairs after Jefferies Financial Group Inc.’s disappointing first look at earnings. and reports of growing jobs that fueled inflation fears.
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The Federal Reserve’s recent reluctance to maintain the pace of interest rate cuts was backed up by a strong jobs report on Friday that sent equity markets lower and yields higher. That dampens investors’ hopes of a repeat of last year’s stock performance, when bank leaders surged 33%, outperforming the broader S&P 500 index.
Analysts counted on the revival of deals and the capital market, income growth, as well as a wave of share buybacks to further strengthen the sector. Investors will get a chance to hear from executives from Citigroup Inc., Goldman Sachs Group Inc., JPMorgan Chase & Co. and Wells Fargo & Co. when they start this year’s first earnings season on Wednesday.
Expectations for the results — covering the final quarter of 2024 — are broadly rosy after the sector received a fresh boost from Trump’s victory, as the president-elect is expected to unleash a wave of deregulation and business-friendly tax policies that could turn the tables on bank profitability.
“It’s not a question of if equity markets will set a record — it’s a question of when,” said Wells Fargo’s Mike Mayo. That could happen already this year, he said. With the annual outlook likely to overshadow respectable fourth-quarter earnings, “the key is guidance on how much faster revenues will grow than expenses.”
Volatility in stock markets fueled by the election is also expected to fuel the final quarter for banks. Citigroup and JPMorgan have already given investors an early look at fourth-quarter results that could signal an uptick in trading.
“We expect trading revenues could be even higher given the typical seasonal slowdown in December that just didn’t happen,” Morgan Stanley analysts led by Betsy Graseck wrote in a note.
Overall, Wall Street is bullish on the sector — Barclays analyst Jason Goldberg expects big bank stocks to extend their rally on hopes of the incoming president’s pro-growth, deregulatory agenda, but acknowledges that borrowing has remained sluggish as corporations assess what the future will look like. electoral landscape.
