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JPMorgan and Wells Fargo Earnings Kickoff Sparks Interest Rate Speculation Amid Market Expectations

Mike Cianciabella | October 11, 2024

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JPMorgan and Wells Fargo to Launch Earnings Season Amid Interest Rate Speculations

Overview of Upcoming Earnings Reports

As Wall Street braces for the kickoff of the third-quarter earnings season, major U.S. banks like JPMorgan Chase & Co. and Wells Fargo & Co. will be stepping into the spotlight this Friday. Analysts and investors alike will be scrutinizing these earnings reports for insights into how recent Federal Reserve interest rate cuts might influence profitability among larger banking institutions.

Following JPMorgan and Wells Fargo, other financial powerhouses including Citigroup Inc., Goldman Sachs Group Inc., and Bank of America Corp. will report earnings on October 15, with Morgan Stanley closing out the earnings trend on October 16.

The Impact of Lower Interest Rates

The backdrop of the earnings reports is the recent movement by the Federal Reserve to lower interest rates in an effort to stimulate economic activity. However, analysts suggest that diversified banks like JPMorgan and Wells Fargo may not enjoy the same benefits as their smaller, regional counterparts. With a lesser portion of their revenue derived from loans, the impact of reduced rates on their lending operations might be muted.

Nonetheless, if these rate cuts stimulate the broader economy, larger banks could potentially benefit from a surge in activities such as deal-making, investment opportunities, credit card spending, and an uptick in financial transactions overall. Investors are keenly interested in how these outcomes unfold and what they will mean for the future profitability of these institutions.

Analyst Perspectives on Bank Stocks

Investor focus has shifted towards assessing stock valuations in light of changing profit expectations. According to KBW analysts, discussions around relative rate sensitivities have intensified, with a strong emphasis on identifying standout stocks as investors anticipate a prolonged easing cycle.

Of particular note, Morgan Stanley analyst Betsy Graseck voiced a competitor view on JPMorgan Chase, downgrading its rating from overweight to equal weight after observing potential for greater net interest margin surprises within other banking stocks. Graseck still maintains bullish positions on Citigroup, Goldman Sachs, and Bank of America, arguing they exhibit stronger earnings potential.

Conversely, Oppenheimer analyst Chris Kotowski expressed that the general outlook from banks remains stable, expecting around a 7% rise in investment banking revenue driven by debt refinancings. However, he anticipates mergers and acquisitions alongside equity underwriting will remain sluggish.

JPMorgan and Wells Fargo’s Earnings Expectations

For JPMorgan, analysts predict third-quarter earnings of $3.99 per share with revenues reaching $41.43 billion, marking a decrease from the previous year’s earnings of $4.33 per share and revenue of $39.87 billion. Interestingly, these projections have seen slight upward adjustments since the quarter’s opening, with earlier forecasts estimating earnings at $3.92 per share.

Wells Fargo, however, is expected to report a profit of $1.28 per share on revenues of $20.40 billion—significantly down from last year’s $1.48 per share and $20.86 billion in revenue. This stagnant outlook comes as the bank works to lift a regulatory asset cap imposed in 2017 following a series of infractions.

Reporting Expectations from Other Major Banks

As the earnings season unfolds, all eyes will be on Bank of America, Citigroup, and Goldman Sachs. Bank of America is anticipated to reveal earnings of 76 cents per share on revenues of $25.25 billion. In comparison, Citigroup’s predictions show earnings of $1.31 per share with revenues projected at $19.86 billion, significantly down from the prior year’s earnings of $1.63 per share. Goldman Sachs is expected to report earnings of $6.89 per share as it contends with a notable drop in trading revenues amid macroeconomic challenges.

For Morgan Stanley, expectations remain stable with a forecast of $1.59 per share in earnings and revenues of $14.35 billion—demonstrating the resilience of its wealth management business, which has remained a stronghold amidst fluctuations in other sectors.

Conclusion

As major banks prepare to release their earnings, the interplay between economic conditions, interest rates, and stock valuations will be pivotal. Investors will not only seek insights into immediate profits but will also evaluate how well these institutions can navigate an environment shaped by lower interest rates and potential economic shifts. The outcomes of these reports will set the tone for the remainder of the earnings season, offering crucial signals for market participants.