Assessing the Landscape: Anticipating US Bank 4Q Earnings and Market Dynamics

Assessing the Landscape: Anticipating US Bank 4Q Earnings and Market Dynamics

Introduction:

Embarking on the traditional 4Q earnings season, major US banks, including JPMorgan, Citigroup, Wells Fargo, and Bank of America, are set to kick off the financial reporting parade on January 12, 2024. A year of varied share price performances among these banks prompts anticipation and scrutiny for the upcoming results.

Share Price Performance:

Over the past year, the share prices of major US banks have exhibited diverse trajectories. JPMorgan stands out as the clear outperformer, boasting a 26.9% gain, while Bank of America lags with a mere 0.9% increase, possibly attributed to a slower recovery from the March 2023 US banking turmoil.

US bank stocks: Revenue and earnings expectations for 4Q 2023

Revenue Expectations for 4Q 2023:

Anticipations for 4Q 2023 suggest positive revenue growth for most major US banks compared to the previous year. JPMorgan leads with a consensus estimate of 11.8% growth, attributed to ongoing integration synergies with First Republic Bank. Conversely, Bank of America is expected to show negative top-line growth (-2.6%) and the most significant earnings per share (EPS) decline (-19.9%) among major banks.

Bond Yields and Financial Market Dynamics:

The drastic decline in bond yields during 4Q 2023, driven by expectations of rate cuts, may provide relief for banks, particularly in lowering funding costs. The recovery in bond prices could also alleviate losses in the banks' securities portfolios, instilling confidence in the stability of the banking sector. The impact on net interest income, however, remains a critical factor to monitor.

Net Interest Margins and Lending Activities:

With a focus on the Federal Reserve's data indicating weak lending activities in 4Q 2023, market participants are keen to observe the impact on net interest margins (NIM). As the rate narrative leans toward lower rates in 2024, sustaining margins becomes a key consideration for banks facing tighter lending standards.

Validation of Economic Resilience:

The banks' guidance will be closely scrutinized for validation of a soft landing scenario in 2024. While loss provisions have shown moderation in 3Q 2023, market participants are eager to see further declines towards pre-pandemic levels, signaling economic resilience. Positive guidance on US consumers' finances and economic conditions will reinforce optimistic views.

Investment Banking and Wealth Management:

Expectations for improved investment banking and wealth management activities in 4Q 2023, supported by a better risk environment, mark a potential turnaround from the lackluster performance in the first nine months. Signs of revival in deal-making and positive impacts on banks' results will be closely watched, contributing to potential earnings recovery.

Technical Analysis Highlights:

Technical analyses for JPMorgan, Bank of America, and Goldman Sachs offer insights into their share price movements, indicating potential support zones, resistance levels, and momentum trends.

Conclusion:

As the US banks commence their 4Q 2023 earnings season, market participants navigate through a landscape of diverse performances, economic dynamics, and technical indicators. The outcomes of these reports will likely shape expectations and influence market sentiments, shedding light on the trajectory of the financial sector in the coming months.