EC Looking Ahead To Big Banks' Q1 Earnings

The large money-center banks that will kick-off the 2021 Q1 earnings season for the sector have enjoyed an amazing run this year, with these stocks handily outperforming not only the broader market but also many of last year’s hot stocks.

You can see this in the chart below that plots the year-to-date performance of JPMorgan (JPM - Free Reportand Wells Fargo (WFC - Free Report), which will report March-quarter results before the market opens on Wednesday, April 14th — relative to the S&P 500 index.

We added Tesla (TSLA - Free Reportto the chart to give you a sense of this year’s changed market dynamics that have shifted in favor of these bank stocks at the expense of last year’s favorites.

We don’t envision seeing a ton of improvement in banks’ Q1 numbers relative to the stabilizing trend we saw in the group’s preceding quarter’s results (2020 Q4) when revenue weakness from soft loan demand and weak net interest margins was partly offset by loan-loss reserve releases, effective cost controls and continued momentum in the capital markets business.

We expect continued momentum along the trends set in 2020 Q4, with the core banking business still reporting weak loan demand and margin pressures relative to the year-earlier period. The sharp rise in interest rates in Q1 – the benchmark 10-year Treasury bond yield jumped from 0.91% at the start of January to 1.74% on March 31st – will not have much of bearing on the group’s March-quarter numbers, but has nevertheless been the single most important catalyst in changing the market’s view of these stocks.

We should see further reserve releases from the group in the Q1 reports, along the lines of what we saw in the preceding period, a trend that we believe will remain in place in the coming quarters as well.

While we don’t expect much on the core banking side, we do expect blockbuster numbers in the capital markets business, particularly on the investment banking side. The first quarter of 2021 witnessed record investment banking activity levels, with both equity underwriting and M&A volumes not only up from the preceding period’s (2020 Q4) strong pace, but significantly above the year-earlier level.

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William K. 4 weeks ago Member's comment

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Leslie Miriam 4 weeks ago Member's comment

Money can't buy love!

Gil Richards 4 weeks ago Member's comment

Maybe, but it can buy everything else!

William K. 4 weeks ago Member's comment

Can't buy poverty, and it can only RENT "friends."