Investors ended 2024 brimming with optimism about US banks. What happens during the start of earnings season this week will put that optimism to a new test in 2025.
The stocks of the biggest US lenders rallied following the election of Donald Trump on hopes that a new Republican administration would loosen some rules and apply more leniency in approving the sort of corporate mergers that produce big profits for Wall Street giants.
But those same stocks have started to flag as investors await fourth quarter and 2024 full year results this Wednesday and Thursday from the biggest names in the industry.
“Any sector, any stock that comes a long way in a short period of time, had better deliver the fundamentals to justify that type of move,” Interactive Brokers chief strategist Steve Sosnick told Yahoo Finance.
JPMorgan Chase (JPM), the country’s largest bank, is expected to report Wednesday that it notched its second straight year of record profits and show that earnings in the fourth quarter jumped when compared to the same year-ago period.
Analysts also expect Bank of America (BAC), Wells Fargo (WFC), Citigroup (C), Goldman Sachs (GS) and Morgan Stanley (MS) to show profit increases for all of 2024 and the fourth quarter when compared to the year-ago period.
Not all of the results will be overwhelmingly positive, however. These big banks are expected to show that their profits in the fourth quarter actually dipped when compared with the third quarter of 2024.
What most investors will be paying close attention to are any outlooks about the coming year, given the unpredictability of inflation, the US economy, the policies of the incoming administration and the direction of interest rates.
A hot December jobs report, signs of persistent inflation and trade policies expected from the new administration has many Wall Street strategists now confident that the Federal Reserve will hold off on further interest rate cuts for now — and that the door has been cracked open for the possibility of rate hikes in 2025.
There is a bull case to be made for how banks will fare this year following a full percentage point of rate cuts from the Fed in 2024. Rates are still high enough to ensure that big lenders can earn healthy lending margins, but they have come down far enough to give some bank borrowers a measure of relief.
Dealmaking is picking up too, with companies issuing debt at a record pace and initial public offerings ramping back up. And the Trump administration is expected to scrap a set of proposed capital rules that would have crimped future profits.
