Equities weekly forecast: US Banks kick-off Q1 earnings season

Equities forecast US banks kick off Q1 earnings season

Despite a solid 1% rebound on Friday, the Dow Jones Industrial Average fell almost 2% across the week, marking its worst weekly performance since October last year. Nervousness has increased across the markets after several Fed officials, including Jerome Powell, confirmed that patience was required before cutting interest rates given the strength of the US economy and the uptick in inflation. Rising geopolitical tensions also hurt risk sentiment.

Looking ahead to next week, volatility could rise after five straight monthly gains, with the release of US inflation figures, the minutes of the March FOMC meeting, and the start of US earnings season.

Q1 earnings season kicks off on Friday with JP Morgan, Wells Fargo, and Citibank reporting.

Earnings season expectations:

According to Factset, Q1 2024 S&P 500 earnings are expected to rise 3.1% YoY, and revenue is set to increase 3.5% compared to the same quarter a year earlier. This marks the third straight quarter of year-on-year earnings growth. However, growth is moderating after 6.7% earnings growth in Q4 2023 on 3.9% revenue growth.

Q1 banks' earnings outlook

The environment for big banks remains complex, and positive and negative factors must be considered. The latest non-farm payroll report and macro data have shown a resilient economy and robust economic activity, which benefits banks. However, expectations for interest rate cuts that fueled the rally in the banks and the broader market have lowered. With inflation still sticky, investors have been weighing up the impact of higher rates for longer on net interest income. Deal-making and IPOs are showing signs of improvement, helped in part by the success of Reddit going public. However, concerns over real estate loans remain.

JP Morgan

JP Morgan, the largest US bank with $39 trillion in assets at the end of 2023, trades around all-time highs ahead of earnings. The bank widened its lead on rival banks after posting record profits in 2023. NII is expected to remain strong, as growth in its loan portfolio is expected to offset a margin squeeze, as high interest rates mean more money is paid out to deposit holders. However, the broadly stable macro backdrop and record-high stock markets could mean more solid results from the bank. Bad loan provisions will be in focus and could provide further insight into the broader health of the US economy. JP Morgan is a diversified business, which puts it in a favorable position compared to regional banks.

Wells Fargo

Wells Fargo has risen 15% across the quarter, outperforming the broader market. The share price has been helped by the removal of restrictions on the bank after several scandals, including how it sold financial products to customers. The restrictions have been in place since 2016. Wells Fargo fell after Q4 2023 earnings disappointed, with profit falling 6% YoY while revenue rose 2%. NII fell 5%, and the bank warned of weaker net interest margins in 2024. Expectations are for adjusted profit to fall 11% and revenue drop 2%. Bad loan provisions were up 34% in Q4 and could remain high. Wells Fargo has a larger exposure to commercial real estate than its peers. The bank has been shoring up its provisions amid worries of a looming commercial real estate crisis.

Delta Airlines

Delta reports on Wednesday just a week after Morgan Stanley called the stock a top pick for this year. The results come as the share price, along with other airlines, is still recovering from the huge losses in the pandemic. The share price is up 13% YTD and 37% in the past year but is still well below all-time highs reached in July 2019, before the pandemic. Load factor will be a key metric as investors look for signs that demand is returning to pre-pandemic levels. The resilience of the economy and jobs market has supported demand despite rising interest rates and tighter financial conditions. On the cost side of the equation, oil prices rose 14% across the quarter and have risen to a 5-month high, likely hurting the bottom line.

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.