As earnings season for the first quarter of 2021 kicks off this week, the results of the top US banks may show that they are back on a sustained growth path after weathering the pandemic-driven slowdown. This optimistic scenario is strongly supported by one of the world's fastest vaccination efforts, a robust recovery in the labor market and government spending that is far from over.
That's the main reason investors have busted the bank. stocks this year, pushing their value to an all-time high.
It is up about 26% so far this year, while gaining only 9% in the same period.
JPMorgan Chase (NYSE :), Goldman Sachs (NYSE 🙂 and Bank of America (NYSE :), our top three picks from this sector, have all posted double-digit profits despite the pandemic and thanks to their strong investment banking and trade departments.
JPMorgan, America's largest bank, sees profits run well into 2023. In his annual letter to shareholders last week, Chief Executive Jamie Dimon said strong consumer savings, increased vaccine distribution and the Biden administration's proposed $ 2.3 trillion infrastructure plan could lead to an economic 'Goldilocks'. -moment & # 39; – rapid, sustained growth alongside inflation and interest rates that are slowly rising.
Record quarterly profit
JPM posted one in the last three months of 2020, aided by its trading division and merger and acquisition fees. The New York City-based global financial services company will report its Q1 earnings on Wednesday, April 14, before the market opens. Analysts expect earnings per share of $ 3.06 on revenue of $ 30.46 billion.
Trading in asset markets was one of the main factors helping banks to recover quickly from their pandemic slump. Trading revenues for Goldman Sachs reached a 10-year high in the. The lender, reporting on the same day as JPM, is expected to post a $ 10.1 share gain on sales of $ 12.27 billion, the highest in the past five quarters.
As the economy recovers and consumer spending increases, What could also fuel the profitability of banks in the coming months is the reserve funds they have set aside to cover any soured loans. That worst-case scenario doesn't seem to have happened during the pandemic, meaning these banks are expected to release tens of billions of dollars from their bad loan commission reserves.
To this optimism is added slowly rising bond yields, indicating that the Federal Reserve will likely be forced to raise interest rates earlier than expected to ward off inflation. Higher rates allow banks to charge more to borrowers, increasing credit margins on products, from credit cards to mortgages.
Bottom Line
Bank stocks, even after their strong run-up 2021, continue to look attractive with many macro trends remaining favorable to their businesses in the post-pandemic economic recovery. JPM, Goldman Sachs and Bank of America, reporting ahead of the opening Thursday, April 15, remain our preferred choice for the financial sector due to their diversified portfolios and stronger balance sheets. In our opinion, any post-gain weakness in these stocks should be considered a buying opportunity.
