The Focus This Week: Banking On The Quarter’s Performance
It’s earnings season (again) and time to find out whether the big banks have continued to bring in the big bucks. Heavyweights JPMorgan, Citigroup, Wells Fargo, Goldman Sachs, and BlackRock will open their books on Wednesday, with Bank of America and Morgan Stanley following suit a day later. Investors have, ahem, vaulted expectations: S&P 500 earnings overall are expected to rise 11.9% compared to the same time last year, which would mark the fastest growth since late 2021.
Now, a lot of people consider these banks’ releases to be the official start of earnings season, and this time around, they’re expected to steal the spotlight. After a standout 2024 where financials stocks jumped 28% – beating the S&P 500’s 23% return – investors are betting on a 40% earnings leap for the sector in the fourth quarter. And sure, the previous year’s low base for banks is likely to help the numbers along, but that’s far from the only thing driving the optimism.
See, banks thrive in a high-rate world. Their “net interest margins” – the difference between what they charge customers for loans versus the amount they pay on their own borrowing – are juiciest when rates are high. That’s the setup they’ve got now, and it’s likely to stick around. Throw in an expected rebound in dealmaking and initial public offerings, a potentially looser regulatory environment, some tantalizingly low valuations, and the fact that financial stocks remain surprisingly under-owned, and banks might just be 2025’s investing dark horse. That’s assuming, of course, that the economy stays on track and sentiment doesn’t sour.
On The Calendar
- Monday: Nothing major.
- Tuesday: US PPI (December).
- Wednesday: US inflation (December), UK inflation (December), France inflation (December), eurozone industrial production (November). Earnings: Citigroup, BlackRock, Goldman Sachs, JPMorgan, Wells Fargo.
- Thursday: Italy inflation (December), Germany inflation (December), UK economic growth (November), US retail sales (December). Earnings: Bank of America, Morgan Stanley, TSMC, UnitedHealth.
- Friday: China economic growth (Q4), China industrial production (December), China fixed assets investments (December), China retail sales (December), UK retail sales (December), US industrial production (December), US housing starts and permits (December).
What You Might’ve Missed Last Week
Global
- Global bond markets took a beating and yields soared to key levels.
- Bitcoin fell below $100,000, dragged lower by rising bond yields and market jitters.
US
- The US economy flexed its muscles again, creating way more jobs than anyone expected in December.
Asia
- China broke out even more new stimulus, but not enough to ease investors’ fears.
Why It Matters
Sticky inflation, political drama, and sky-high government debt continued to rattle markets last week, sparking a bond selloff that sent yields surging. US Treasury yields popped to near 5%, and UK and Japanese yields hit highs not seen in at least a decade. And although these higher yields hint at economic resilience, they’re no picnic for stocks. Higher interest rates tend to slow the economy, shrink the value of future profits, and make cash accounts more appealing than stocks. And they reflect real uncertainties on the outlook for inflation and interest rates. More worrying, stocks have historically suffered their biggest setbacks when long-term yields have risen faster than shorter-term ones – as has been the case lately. It’s no wonder Wall Street’s “fear gauge” jumped to elevated levels again.
Bitcoin slipped back below $100,000, reminding everyone just how closely it tracks stock vibes and easy money. Like tech shares, bitcoin rocketed after the Federal Reserve (Fed) hinted it was done hiking rates, sparking a sharp drop in borrowing costs and a boisterous rush into riskier assets. But last week’s jump in bond yields flipped the script: fearful sentiment and plumper returns on safer bets made bitcoin less tempting, prompting some investors to lock in profits. It was a timely reminder that bitcoin often behaves less like “digital gold” and more like a high-beta tech stock, amplifying the market’s swings and offering a litmus test for how much of a gamble investors are willing to take.
In some ways, the US economy’s not doing just fine, it’s thriving. The latest monthly job report revealed stronger-than-expected hiring and a dip in the unemployment rate, blunting talk (at least for now) about a coming recession. That marked the 48th straight month of job growth in the US, tying for the second-longest streak in history. And it wasn’t just those 256,000 new jobs and the new 4.1% unemployment rate turning heads last week: a key gauge of US services industry activity hinted that the heavyweight economic sector is likely to continue its steady expansion. Plus, data from earlier in the week showed 8.1 million job openings in November, proving demand for workers is still resilient. Stocks initially plunged Friday after the stellar jobs report, as the strength of the job market dashed hopes for further interest rate cuts from the Fed. And that’s a pointed reminder that good news for the economy isn’t always good news for markets.
China rolled out yet another round of economic stimulus last week, aimed at getting its consumers spending again. The latest measures included new subsidies on home appliances and electronics and an extension of trade-in incentives for electric and hybrid car purchases. The government’s cautious, step-by-step approach marks a departure from its previous, debt-driven growth tactics, and some worry it won’t be enough to stave off a deeper crisis. Weak consumer confidence, a property crisis, and sluggish business activity are dragging prices down and spooking would-be investors. And there’s a major fear factor at play too: the potential for a Japan-style “balance sheet recession,” where businesses prioritize paying off debt over spending, potentially locking China into years of weak growth and deflation.
