c. B. Morgan Chase (JPM) and Wells Fargo (WFC) reported better-than-expected fourth-quarter earnings early Friday, with City Group (c) On tap before the opening, amid the Fed’s plan to raise interest rates in the coming months and the omicron’s impact on the economy. Shares of GBM and Citigroup fell in pre-market trading, while Wells Fargo rose.
These reports come as expectations of the Federal Reserve’s policy changes are driving up bond yields and interest rates. Banks benefit from higher interest rates, which make more money on the loans they make. CFRA Research analyst Kenneth Lyon says in a recent note to clients that consumer loan activity is improving but still below pre-pandemic levels. In March 2020, bank consumer loans peaked at $859 billion and then declined to $743 billion in April 2021. Bank consumer loan balances in December 2021 are just under $800 billion.
Meanwhile, major banks will also be affected by the slowdown in consumer spending with inflation picking up in the fourth quarter and omicron spreading across the country.
“Near-term brings uncertainty and some weakness about the trajectory of consumer spending, due to the period of the seasonal slowdown and potential Omicron impacts,” Lyon said. “We think this could be temporary if the omicron variant can be controlled, especially as we approach the spring 2022 season.”
CPI inflation hits 39-year high, but Dow is rising
Investment activity continues to recover. Lyon wrote that capital markets activity rose 19% year-over-year to $1.3 trillion in 2021, marking the strongest period since records began in 1980.
“Stock trading volumes and transaction fees have increased exponentially with increased investor participation, with stock flows and active trading from retail investors,” Lyon wrote. “We believe that investment banks could achieve 8% to 10% year-over-year growth in debt underwriting fees from new issues, driven by higher-yield corporate bond issues.”
Elsewhere, major banks will have less cash reserves to release in net profit this quarter. They built up huge cash reserves at the start of the pandemic, anticipating loan defaults as people lost their jobs. However, many of these reserves were not needed and have been released back into net profit over the past several quarters. As a result, there are fewer of these funds to bring this quarter to increase profits.
Estimates: FactSet analysts saw JPMorgan’s earnings of $3 per share, down 21% from the same period last year. Revenue was expected to reach $29.78 billion, down 1.3% from last year.
consequencesEarnings per share from JPMorgan fell to $3.33 per share, while revenue rose to $30.35 billion.
JPMorgan’s earnings got a boost from the release of $1.3 billion in loan loss reserves. Lending has boomed, particularly in the wealth management department.
Bank stocks: JPM Stock
Shares fell 3.2 percent to 162.90 at the start of trading on Friday in the stock market. JPM stock has a buy point with a flat base at 173.06, according to MarketSmith chart analysis.
Shares have gained over the past several days, after rising above the 50-day line on January 4. The relative strength line for JPM stock is trending higher. Its RS rating is 77 out of the 99 best possible. EPS rating is 79.
Wells Fargo earnings
EstimatesAnalysts expected Wells Fargo to report earnings of $1.04 per share, an increase of 63% from the same period last year. Views to revenue of $ 18.79 billion, an increase of 4.8%.
consequencesGAAP earnings came in at $1.38 per share, while revenue jumped to $20.86 billion.
Wells Fargo Stock
Shares rose 2.7 percent to 57.50 early Friday. WFC stock has been extended after the early January breakout above the base fixed buy point at 52.66. WFC stock has an RS rating of 95 and an EPS rating of 68. Its relative strength line is trending higher, reaching highs not seen since last April.
EstimatesAnalysts see Citigroup earnings per share of $1.72, 16.8% lower than the previous quarter. Revenue is expected to increase 2.1% to $16.85 billion.
consequences: Check again on Friday.
Citigroup agreed earlier on Friday to sell banking operations in four Southeast Asian countries for $2.7 billion. Its operations in Indonesia, Malaysia, Thailand and Vietnam are being acquired by Singapore-based United Overseas Bank.
Shares were down 1.7% to 66.60 in pre-market trading. Citigroup stock is rising towards a double bottom buy point at 74.74. Stocks are back above the 50-day line after hitting their lowest level in December.
Citigroup’s relative strength line is moving up again after falling back for several weeks. It still has an RS rating of only 39, while the EPS rating is a solid 89.
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