US results season preview: bank stocks and big price moves
Some of the world’s biggest banks are preparing to publish quarterly results, kickstarting another closely watched period of earnings reporting in the US. Here’s what to expect.
14th January 2025 15:36
by Graeme Evans from interactive investor
Wall Street expects another stock picker's earnings season when US post-election optimism is put to the test in fourth-quarter results due to be released from tomorrow.
JPMorgan Chase & Co (NYSE:JPM) is among seven banks in the spotlight on Wednesday and Thursday before Netflix Inc (NASDAQ:NFLX) on 21 January, Tesla Inc (NASDAQ:TSLA) and Microsoft Corp (NASDAQ:MSFT) on 29 January and Apple Inc (NASDAQ:AAPL) on 30 January.
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In its preview note, analysts at Bank of America said that the options market is once again pricing in some big share price moves in reaction to fourth-quarter results.
This points to an average 4.7% implied move the day after figures are presented.
It follows a stock picker’s earnings season over the previous quarter, with the average move of 5.3% the highest since the bank started tracking data in 2014.
While the presidential election was a clearing event for companies to unleash capital expenditure, the recent surge in long-term borrowing costs and the threat of trade wars have clouded some of that optimism.
Consensus forecasts point to an unchanged year-on-year fourth-quarter earnings growth rate of 8%, with five out of 11 sectors set to report an acceleration in performance.
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That will be led by the financial sector, which FactSet forecasts will post growth of 37.5% as the banking industry benefits from favourable comparisons with a year earlier.
The financial data provider said that trends on net interest margin, loans and deposit growth will be among positives, but with non-interest income performance a negative at most banks.
The most important new information is likely to be refreshed forward guidance and anticipation of a more favourable regulatory environment than has existed in several years.
Lacklustre M&A volumes will continue to weigh on investment banking results, although this is offset by expectations of a stronger outlook for 2025.
FactSet added: “Overall, fourth-quarter bank results look to be a mixed bag, but with bank stocks at historically moderate valuations (both absolute and relative to the S&P) and healthy earnings growth expectations, the bar may not be very high.”
In the previous quarter, earnings across the S&P 500 index beat consensus by 4% compared with the historical average beat of 2.5%. Growth decelerated as expected to 8% year-on-year from 11% in the second quarter, reflecting tougher comparatives.
The Magnificent Seven led the Q3 beat after topping consensus by 11%, while the “Other 493” delivered a 2% beat after coming out of their earnings recession in the previous quarter.
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Hopes that the S&P 500 index can achieve broader growth outside the technology-focused mega-cap stocks have been fuelled by signs that December marked the start of a cyclical rebound in manufacturing.
Albeit still low, Bank of America said that over 25% of companies are expected to outpace the Magnificent Seven’s earnings per share growth by the third quarter of this year. That’s compared with the low point of just 8% seen in the second half of 2023.
It added: “With half of S&P earnings tied to manufacturing, the cyclical rebound should lead to volume growth, driving better operating leverage and margins.”
The bank adds that 67% of companies are set to post positive EPS growth, similar to last quarter but that is expected to improve to a record high of 95% by the end of the year.
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