All eyes on guidance as Wall Street giants report

Wall Street’s major banks will launch the S&P 500 first-quarter reporting season in the grips of an industry bear market after US recession bets were fuelled by tariffs uncertainty.

The shares of bellwether JPMorgan Chase & Co (NYSE:JPM), which is due to post earnings figures tomorrow (Friday), ended last week 24% down on its mid-February peak.

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This gap narrowed to 16% following President Trump’s 90-day tariff pause, but with confidence still fragile the market heavyweight opened lower today. The Nasdaq Bank Index recently stood 27% lower than its peak, well within the definition of a bear market.

Financial data group FactSet expects the banking industry to report an earnings growth rate of 5% for the first quarter, although this will be secondary to views on the state of the US economy and health of the consumer at a time of elevated interest rates.

JP Morgan boss Jamie Dimon gave a flavour of what to expect from the industry when the bank published his letter to shareholders in Monday’s annual report.

He wrote: “The recent tariffs will likely increase inflation and are causing many to consider a greater probability of a recession.

“And even with the recent decline in market values, prices remain relatively high. These significant and somewhat unprecedented forces cause us to remain very cautious.”

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His darker mood follows a strong 2024 trading performance after the bank achieved record revenue for the seventh consecutive year. The top line figure hit $180.6 billion and net income $58.5 billion, with return on tangible common equity at 20%.

Dimon added: “Despite the unsettling landscape, the US economy, at least until recently, continued to be resilient, with consumers still spending (though with some recent weakening) and businesses still healthy.

“It is important to note that the economy has been fuelled by large amounts of government deficit spending and past stimulus.

“There also remains a growing need for increased expenditure on infrastructure, the restructuring of global supply chains and the military, which may lead to stickier inflation and ultimately higher rates than markets currently expect.”

Wells Fargo & Co (NYSE:WFC) is also reporting on Friday before The Goldman Sachs Group Inc (NYSE:GS) on Monday and Citigroup Inc (NYSE:C) and Morgan Stanley (NYSE:MS) on Tuesday. Nearly 60% of the S&P 500 companies that are scheduled to post earnings in the next two weeks are from the financial sector, including American Express Co (NYSE:AXP).

They are expected to report the fifth-highest year-over-year earnings growth rate of all 11 sectors for the first quarter at 2.3%.

Across the S&P 500, FactSet estimates a year-over-year earnings growth rate of 7.3%. This would mark the seventh straight quarter of improvement by the index.

The results calendar also includes Tesla Inc (NASDAQ:TSLA) on 22 April, Microsoft Corp (NASDAQ:MSFT) on 24 April, Exxon Mobil Corp (NYSE:XOM) on 25 April, Amazon.com Inc (NASDAQ:AMZN) on 29 April and Apple Inc (NASDAQ:AAPL) on 1 May.

Bank of America said beats to earnings forecasts may not move the needle on shares as much as in previous quarters, given that the focus will be on forward guidance.

That said, it warned of an information vacuum if companies choose to shut down guidance because of the tariffs uncertainty.

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During Covid, only 10% of S&P 500 companies issued annual guidance in the second quarter of 2020, down from an average of 40% in the four quarters prior to that.

BofA added: “During this time, the premium valuation for companies that continued to guide hit a peak, and companies that withdrew annual guidance underperformed peer groups by an average of three percentage points between the date they last issued guidance and re-instated guidance.”

With tariffs posing downside risk to growth forecasts and upside risk to inflation, the bank is expecting low single-digit earnings per share growth in 2025.

It pointed out the average hit to earnings during a recession is about 20%, varying between 5% in 1980 to as much as 45% during the global financial crisis.

The bank said corporates and consumers were more levered in recessions until Covid, but that the debt burden has shifted to governments - posing a threat to “the stimulus white knight scenario”.