Wall Street Banks Face Uncertainty Amidst Earnings Season
As the first earnings season of the year approaches, Wall Street banks are bracing themselves for a tumultuous ride. The recent jobs report, which sparked inflation fears, has thrown a wrench into investor hopes for a repeat of last year’s stellar stock performance. The Federal Reserve’s decision to slow down interest-rate cuts has added to the uncertainty, sending stock markets tumbling and yields higher.
A Shift in Expectations
Analysts had been counting on a resurgence in dealmaking, capital markets, and revenue growth, as well as a wave of share buybacks to bolster the sector. However, the strong labor report has tempered those expectations. Investors will now be keenly listening to the leaders of Citigroup, Goldman Sachs, JPMorgan Chase, and Wells Fargo when they report their earnings on Wednesday.
Guidance Takes Center Stage
While respectable fourth-quarter earnings are expected, the real focus will be on the annual outlooks. “The key is the guidance for how much revenues will grow faster than expenses,” said Mike Mayo at Wells Fargo. With capital markets poised to set a record, the question is when, not if, it will happen.
Election-Fueled Volatility Boosts Trading
The election-fueled volatility in equity markets is expected to have given banks a boost in the last quarter. Citigroup and JPMorgan have already provided a glimpse into their fourth-quarter results, which could signal a pickup in trading. Morgan Stanley analysts expect trading revenues to come in even higher, given the unusual strength in December.
Macro Backdrop Threatens Outlook
Despite the optimism, the macroeconomic backdrop threatens to cast a pall over 2025 outlooks. Investors want to know how the Fed’s recent interest-rate cuts and the slower-than-predicted policy easing cycle are playing out. Higher longer-term bond yields can benefit lenders, but they also signal additional pressure on consumers and slow borrowing.
Cracks in the Bull Thesis
There are cracks in the bull thesis, and share performance has been muted following the election. A disappointing report from Jefferies showed investing banking revenue and profit margin expansion likely fell short of Wall Street’s estimates. Expectations of a blowout year for initial public offerings may also be tempered by market volatility and potential tariffs under a new administration.
Banks Must Deliver
The strength of the overall market is coming into question, and investors will be hoping the big banks can deliver solid reports to help put a floor in choppy markets and resume their upward trend. With so much uncertainty, the banks’ earnings season will be closely watched, and their guidance will be crucial in shaping investor sentiment.
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