As the fourth quarter 2020 earnings season kicks off this week, the results of some of the top US banks may show that they are weathering the economic downturn much better than previously expected. Reports could even show that the bottom of the current downturn is already in the rearview mirror.
The turnaround will be in stark contrast to their losses in the first half of the year, when banks had set aside huge sums for the bad loans fueled by the pandemic-induced recession. These facilities hurt their earnings at a time when it was difficult to predict how the future would unfold, especially when there was uncertainty about the vaccine's success.
But as we move into 2021, the outlook for banks has improved significantly, driven mainly by expectations of a surge in federal spending following the success of President-elect Joe Biden, a rise in interest rates and strong performance from their adoption and trade. Affairs.
The reintroduction of the bank stock buybacks last month and Biden & # 39; s selection of Janet Yellen as Finance Minister have also contributed to an increase in the number of bank shares. The index is up 16% over the past month, much better than the 4% rise over the same period. Last year, the bank meter fell 14%, while the broader market rose 16%.
Three of the country's largest lenders – JPMorgan Chase & Co. (NYSE :), Citigroup Inc. (NYSE 🙂 and Wells Fargo & Co. (NYSE 🙂 – are expected to release quarterly results on Friday.
JPMorgan, one of the strongest performing companies, is likely to report earnings of $ 2.42 per share on sales of $ 28.02 billion, according to analyst estimates.
JPMorgan Weekly Chart. increased trading volumes. His strength in trading and underwriting is likely to boost earnings again in the fourth quarter.
Another economy star hurt by the COVID-19 is Goldman Sachs Group Inc. (NYSE :). With smaller lending and high exposure to trade, Goldman is taking advantage of the pandemic as investors rushed to reset their portfolios.
In, Goldman's profits nearly doubled, the latest confirmation that even in a pandemic and recession Wall Street can still make money. That performance triggered a strong move in GS stocks, which are now trading at an all-time high and have gained more than 40% in the past quarter. Shares closed at $ 302.94 on Wednesday, up 0.2.4% on that day.
Goldman Sachs Weekly Chart.
Analysts forecast earnings of $ 7.04 per share for Goldman Sachs for the last quarter of 2020 on revenues of $ 9.72 billion. The lender is expected to report on January 19
Bank stocks are & # 39; back in fashion & # 39; amid optimism about fiscal stimulus, infrastructure spending, rising interest rates and increased capital returns, Goldman analyst Richard Ramsden wrote in a note published by Bloomberg last week.
He highlighted the outperformance of equities since the Fed released its special crisis stress test results in December, which were in line with its view that bank yields should recover nearly three-quarters of the 2020 decline over the next two years and recoup & # 39 ;.
Bottom Line
Banks with strong trading units outperform their competitors, even as the economy remains under extreme pressure as a result of the pandemic. This trend likely boosted their earnings in the fourth quarter, justifying a huge jump in their stock value.
