Ready, set, earnings
Get ready for the Q4 earnings season. Four of the biggest U.S. banks will kick off the festivities this morning, with results from JPMorgan Chase (JPM), Bank of America (BAC), Citigroup (C) and Wells Fargo (WFC). Keep in mind that while the potential for rate cuts later this year spurred a rally in bank stocks in late 2023, Q4 results should reflect peak interest rates, putting pressure on deposit costs, net interest income, and available-for-sale securities portfolios.
What to watch: “Expect some incremental NIM (net interest margin) pressure for the quarter, but abating from here,” Morgan Stanley analysts led by Betsy Graseck wrote in a note to clients. “This quarter we saw the first evidence that deposit price competition is easing, as banks began cutting offer rates for new CDs over the past month (down by 8 bps in December), which should benefit NIM starting in 1Q24.” Also keep an eye on the outlook for revenue, expenses, credit quality, and capital returns, as well as one-time charges from things like portfolio re-evaluations, costs from Basel III endgame requirements, and replenishing FDIC funds, which can skew Q4 results.
Most of the big banks are expected to post lower earnings than a year ago, with JPMorgan (JPM) being a notable exception. It’s expected to earn $3.61 per share in Q4 2023, compared with $3.57 a year ago. While Goldman Sachs (GS) is expected to earn $4.27 per share vs. $3.32, the year-ago figure had significant one-time charges. Most lending will still likely be strong or stable, with commercial industrial loans rising after multiple quarters of weakness and real estate lending turning positive.
Investing angle: Attention has shifted to the Federal Reserve’s anticipated rate cuts, resulting in the KBW Nasdaq Bank Index soaring 26% since the end of Q3, outpacing the S&P 500’s 11% increase. Note that as the 10-year U.S. Treasury yield (US10Y) has eased, bank stocks have risen. For those looking to navigate the banking sector, SA analyst The Beginner Investor is out with a fresh article entitled, JPMorgan Vs. Bank Of America Vs. Wells Fargo, while David Zanoni explores what earnings guidance means for the overall market. (12 comments)
Retaliatory strikes
Oil prices are responding to the U.S. and British airstrikes in Houthi-controlled areas of Yemen, with West Texas Intermediate (CL1:COM) climbing 2.4% to $73.71/bbl early Friday. Shipping stocks also rose during the premarket session. “These strikes are in direct response to unprecedented Houthi attacks [that] have endangered U.S. personnel, civilian mariners, and our partners, jeopardized trade, and threatened freedom of navigation,” President Biden declared, adding that he would “not hesitate to direct further measures” if necessary. Reacting to 16 airstrikes that hit radar installations, storage sites and missile launchers, the Houthis pledged to continue targeting ships around the Red Sea, saying that “any American attack won’t go unpunished” and would elicit a “big” response. (6 comments)
Dumping EVs
Electric vehicle stocks are still under pressure after Hertz Global (HTZ) said it would cut its EV adoption losses by offloading a third of its global fleet to buy gasoline-powered cars. That’ll put 20,000 EVs up for sale, including those from Tesla (TSLA), in response to weak take-up and elevated repair costs. The decision adds to growing EV demand worries, which were already amplified by pullbacks on production targets. What about the rest of the fleet? Hertz plans to improve profitability by providing more charging stations and making it easier for customers to acclimate to an EV rental. (151 comments)
Going live
The first spot bitcoin (BTC-USD) ETFs debuted on the U.S. exchanges with a roaring start as more than $4.6B worth of shares changed hands on Thursday, propelling the top cryptocurrency briefly above $48K. Grayscale Bitcoin Trust (OTC:GBTC) saw the largest trading volume at $2.3B, while BlackRock’s (BLK) iShares Bitcoin Trust (IBIT) and Fidelity Wise Origin Bitcoin Fund (FBTC) saw over $1B and $688M in trading volumes, respectively. While some analysts expect up to $100B in bitcoin ETF flows this year, many on Wall Street believe the investment is too risky, including Vanguard and Merrill Lynch. Also see Bitcoin ETF Approval: What Does It Mean For Crypto Stocks by SA Investing Group Leader Bram de Haas.
