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(Bloomberg) — The outlook for Wall Street banks for the year will be in the spotlight after a disappointing first look at Jefferies Financial Group Inc.’s earnings. and an employment report that stoked inflation fears.
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The Federal Reserve’s recent reluctance to keep up the pace of interest rate cuts was backed up by Friday’s strong jobs report that sent the stock market lower and yields higher. That puts cold water on investors’ hopes of a repeat of last year’s stock performance, which saw bank leaders climb 33%, outperforming the broader S&P 500.
Analysts have counted on a revival in deals and capital markets, revenue growth, as well as a wave of share buybacks to further bolster the sector. Investors will have the opportunity to hear from leaders from Citigroup Inc., Goldman Sachs Group Inc., JPMorgan Chase & Co. and Wells Fargo & Co. when they start the first earnings season of the year on Wednesday.
Expectations for earnings, covering the final quarter of 2024, are broadly upbeat after the sector got a fresh boost with Trump’s victory as the president-elect is expected to usher in a wave of deregulation and favorable fiscal policies to businesses that could change the game. for banks’ profitability.
“It’s not a question of whether capital markets set a record, it’s a question of when,” said Wells Fargo’s Mike Mayo. That could happen as soon as this year, he said. With the full-year outlook likely to eclipse respectable fourth-quarter earnings, “the key is the guidance of how much revenue will grow faster than expenses.”
Election-driven volatility in equity markets is also expected to have increased in the last quarter for banks. Citigroup and JPMorgan have already given investors an early look at fourth-quarter results that could signal a rebound in trading.
“We expect that trading revenue could increase further given that the typical seasonal slowdown in December did not occur,” Morgan Stanley analysts led by Betsy Graseck wrote in a note.
Wall Street is generally bullish on the sector: Barclays analyst Jason Goldberg expects big bank stocks to extend the recovery on hopes around the incoming president’s deregulation and pro-growth agenda, but admits that the borrowing has remained slow as companies assess what the electoral landscape will look like.
