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Could the Banks Help Extend Last Year's Rally?

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

The banks rounded out a mixed earnings season and most of the major U.S. financial institutions such as JPMorgan, Citigroup, Wells Fargo, Morgan Stanley, and Goldman Sachs, have already reported their Q4 financial results. In this earnings season, the primary focus extends beyond the quarterly figures themselves to the management’s insights on the 2024 outlook and the return to revenue growth.

2023 marked by the collapse of Silicon Valley Bank, Signature Bank, First Republic, and Credit Suisse as interest rates reached their highest levels in 40 years. Despite the banking crisis, financial metrics for the major U.S. were robust.

JPMorgan, the largest U.S. bank by assets and often considered a bellwether for the rest of the market, was the standout performer in the banking sector this earnings season. Despite a 15% decline in Q4 profits from the prior year to $9.3 billion, JPMorgan achieved a record-breaking annual profit of $49.6 billion.

Overall, the top five banks reported a 21.2% decline in earnings compared to the same period in 2022, with a combined net income of $19.73 billion. Credit costs witnessed a widespread increase across all banks and revenue growth has been mixed.

Most of the top five banks see net interest income, which is a key profit metric that shows the difference between what the bank earns from lending and the interest it pays out on deposits, improving in the second half of 2024, when the expected Federal Reserve interest-rate cuts would begin to improve their bottom lines.

The five biggest banks on Wall Street are of the view that the U.S. economy is likely to avoid a recession, but that would depend on the timing and frequency of interest rate cuts by the Federal Reserve. Most banks see a recovery in deal and IPO markets in 2024, which should be bullish for stocks.

A graph of stock market

Description automatically generated with medium confidence

Source: TradingView, SPDR Select Sector Fund – Financial (XLF)

The banking sector can benefit from the Federal Reserve interest rate cuts, as the cost of funding declines, while the value of their long-term lending increases, enhancing their financial performance. However, the market’s expectation of six rate cuts, in contrast to the Fed’s projection of three, could significantly impact bank profits and the broader economic growth.

While the labour market resilience, continued economic growth albeit at a slower pace, and decreasing inflation support the notion of a “slow landing,” any deviation from the expected Federal Reserve actions may pose challenges for banks in generating profits, especially in global mergers and acquisitions, housing, and consumer lending.

As U.S. equity markets trade near record highs and our long-term outlook on the S&P 500 is around 5,300, the banks may play a pivotal role in extending the previous year’s rally. The main risks the banking sector faces is a significant slowdown of the economy, lower provisioning, a rise in non-performing loans, sticky inflation, and a delay in the expected interest rate cuts.

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

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Violeta Todorova

Senior Research

Violeta è entrata a far parte di Leverage Shares nel settembre 2022. È responsabile dello svolgimento di analisi tecniche e ricerche macroeconomiche ed azionarie, fornendo pregiate informazioni per aiutare a definire le strategie di investimento per i clienti.

Prima di cominciare con LS, Violeta ha lavorato presso diverse società di investimento di alto profilo in Australia, come Tollhurst e Morgans Financial, dove ha trascorso gli ultimi 12 anni della sua carriera.

Violeta è un tecnico di mercato certificato dall’Australian Technical Analysts Association e ha conseguito un diploma post-laurea in finanza applicata e investimenti presso Kaplan Professional (FINSIA), Australia, dove è stata docente per diversi anni.

Julian Manoilov

Marketing Lead

Julian è entrato a far parte di Leverage Shares nel 2018 come parte della prima espansione della società in Europa orientale. È responsabile della progettazione di strategie di marketing e della promozione della notorietà del marchio.

Oktay Kavrak

Head of Communications and Strategy

Oktay è entrato a far parte di Leverage Shares alla fine del 2019. È responsabile della crescita aziendale, mantenendo relazioni chiave e sviluppando attività di vendita nei mercati di lingua inglese.

È entrato in LS da UniCredit, dove è stato responsabile delle relazioni aziendali per le multinazionali. La sua precedente esperienza è in finanza aziendale e amministrazione di fondi in società come IBM Bulgaria e DeGiro / FundShare.

Oktay ha conseguito una laurea in Finanza e contabilità ed un certificato post-laurea in Imprenditoria presso il Babson College. Ha ottenuto anche la certificazione CFA.

Sandeep Rao

Research
Sandeep è entrato a far parte di Leverage Shares nel settembre 2020. È responsabile della ricerca sulle linee di prodotto esistenti e nuove, su asset class e strategie, con particolare riguardo all’analisi degli eventi attuali ed i loro sviluppi. Sandeep ha una lunga esperienza nei mercati finanziari. Iniziata in un hedge fund di Chicago come ingegnere finanziario, la sua carriera è proseguita in numerose società ed organizzazioni, nel corso di 8 anni – da Barclays (Capital’s Prime Services Division) al più recente Index Research Team di Nasdaq. Sandeep detiene un M.S. in Finanza ed un MBA all’Illinois Institute of Technology di Chicago.

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