15 January 2021

Big Banks Set to Begin 1st Earnings Season of 2021

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News shaping
the markets today

     

What’s happening: Big investment banks are lined-up to begin the first earnings season of 2021 on Friday.

What happened: Citigroup, JPMorgan Chase and Wells Fargo will be among the notable banks to report earnings results for the fourth quarter later today.

While the leading banks continue to face challenges, expectations for the fourth quarter remain elevated. One factor could benefit these stocks when Wall Street reopens after the holiday on Monday.

Why it matters: The banking industry has just come off a highly challenging year, given the low interest rate environment and massive credit loss provisions due to the struggling economy. While all these factors have not disappeared completely, the sector received some good news recently when the Federal Reserve allowed banks to resume their stock repurchases.

Although 2020 proved to be tough for financial stocks, their performance improved during the final months of the year. The S&P 500 Financials was easily one of the best performing indices in the last three months of 2020.

There were 168 IPOs (initial public offerings) in the fourth quarter, with companies raising a whopping $53.8 billion. This phenomenal success of IPOs and elevated trading volumes due to heightened volatility are expected to have boosted fourth-quarter earnings in the banking industry. Earnings calls highlighting the stronger trading desks could continue drive banking stocks early next week.

On the other hand, the more consumer-focused banks may remain under pressure, especially in view of the downbeat economic data, including the latest unemployment report for December. Credit card activity is also expected to remain tight, following the slowdown in job additions and weekly jobless claims remaining above the 800,000 mark for most of the fourth quarter.

The continued rise in covid-19 cases and new restrictions imposed towards the end of year could weigh on earnings in the banking industry. However, with the covid-19 vaccine rollout, banks may guide to a meaningful turnaround in their earnings in the first quarter of 2021 and beyond.

With US markets remaining closed on Monday, Bank of America and Goldman Sachs are scheduled to report earnings on Tuesday, with Morgan Stanley to follow on Wednesday.

How shares performed so far: Although covid-19 infections continue to rise with high daily confirmed numbers, hopes of a faster recovery supported by mass vaccinations have recently driven banking stocks higher. Since the start of 2021, shares of big banks, including Citigroup, JPMorgan Chase, Wells Fargo and Bank of America, have surged by more than 10%.

What to watch: Investors will keep an eye on the credit loss provisions set by banks in the fourth quarters, with expectations of a decline with the disbursement of the new stimulus package.

The Markets Today

     

US stocks will be in focus today ahead of various economic reports from the country.

Context: Wall Street closed lower on Thursday, with selloffs during the final trading hour, as investors waited for President-elect Joe Biden’s speech on additional fiscal aid later in the evening.

Details: Thursday’s session began on a positive note, with various stocks rising and taking the Dow Jones index and Nasdaq 100 to new record highs. However, stocks turned lower during the last hour of trading, with investors becoming cautious ahead of the Biden administration’s new fiscal aid plan.

President-elect Joe Biden announced a massive $1.9 trillion rescue package on Thursday evening, providing support to businesses and households amid the pandemic-induced economic downturn. Biden also confirmed individual cheques of $2,000 each, adding $1,400 to what was promised by the Trump administration.

Recent weekly data showed high initial jobless claims due to the reimposition of restrictions in some regions to curb the further spread of covid-19. Jobless claims climbed by 181,000 to 965,000 versus expectations of a much lower reading of 800,000.

The Dow Jones index shed 68.95 points to close at 30,991.52 on Thursday, after hitting an intraday record high of 31,223.78. The S&P 500 index fell 0.4% to 3,795.54, while the Nasdaq 100 lost 0.58% to settle at 12,898.69.

What to watch: Markets await a basket of economic data from the US, including retail sales, producer prices, New York Empire State Manufacturing index, industrial production, business inventories and University of Michigan's consumer sentiment index.

US retail sales are projected to decline 0.1% in December, while producer prices might rise 0.4%. The New York Empire State manufacturing index is projected to rise to 6 in January, from 4.9 in December. Industrial production is expected to rise 0.5% in December, while business inventories are expected to grow by 0.5% in November.

Rising covid-19 cases remain a major concern for investors, with total cases exceeding 23.3 million in the US.

Other Markets: European trading indices closed higher on Thursday, with the FTSE 100, German DAX 30 and French 40 up by 0.84%, 0.35% and 0.23%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

UK’s balance of trade, industrial production, manufacturing production, construction output, good trade balance and GDP, France’s consumer prices and government budget value, Spain’s consumer prices, Turkey’s central government budget balance and motor vehicle production, Eurozone's balance of trade, Brazil’s retail sales, India’s balance of trade, Russia’s foreign exchange reserves and balance of trade, China’s foreign direct investment as well as the US Baker Hughes crude oil rigs.

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