Last Friday, three major US banks handed investors their report cards. And if the market is any indicator, these banks will soon be spending a lot less time outside and more time hitting the books. JPMorgan, Wells Fargo, and Citi exceeded analyst expectations despite the likelihood of interest rates remaining higher for longer. But for banks, this means paying more interest on deposits — potentially keeping their profits flat in 2024. This concern may have spooked investors, sending down 6% on Friday, its largest single-day decline since 2020. But the bright spots were a rebound in banking fees and a surge in spending.
- At JPMorgan and Citigroup, investment banking fees rose 21% and 32%, respectively — signaling a recovery in corporate dealmaking.
- Credit card spending across the three banks eclipsed $471B — with Wells Fargo leading the pack with an 8% increase in spending from the year-ago quarter.
What’s the earnings outlook?
With stocks near all-time highs, companies have a lot at stake during earnings season. Falling short could jeopardize those gains, but fortunately, many companies had set the bar low. According to FactSet, 71% of the 112 S&P 500 companies that issued earnings guidance last quarter had a negative outlook.
- FactSet predicts that revenue and earnings growth will rise by 3.5% and 3.2%, respectively, in the first quarter — well below the 4.4% and 5.7% forecast from the previous quarter.
- This would mark the S&P 500’s third consecutive quarter of earnings growth — and its 14th consecutive quarter of revenue growth.
One more quarter to juice? Manish Kabra, Societe Generale’s Head of US Equity Strategy, anticipates “at least one more quarter” of strength, stating, “It’s way too early to apply the brakes on the US stock rally” (BBG). Cayla Seder from State Street also expects a strong earnings season on the back of solid economic growth in the first quarter. But with valuations running high and investors still waiting for tech companies to deliver on AI, any weaknesses could push markets lower.
