The Dow and S&P 500 are at record highs thanks to Wall Street optimism about Covid-19 vaccines, federal government stimulus, a rebounding global economy and a surge in value stocks. Now it’s time for Corporate America to prove that investors should believe the hype.
A slew of big banks and other financial firms will report their first quarter earnings next week, giving the market its first glimpse of just how strong profits might be this year.
JPMorgan Chase, Goldman Sachs, Bank of America, Wells Fargo and BlackRock are just a few of the companies on tap to post their results.
According to data from FactSet Research, overall earnings for the S&P 500 should increase 24.5% in the quarter from a year ago and financial sector earnings are expected to surge nearly 80% from the first quarter of 2020.
Bank stocks have surged this year as long-term bond yields have picked up. Higher yields make lending more profitable for banks. The Financial Select Sector SPDR exchange-traded fund, which owns most of the top bank stocks, is up nearly 20% this year.
“The tone is going to be positive. We’re beginning to see the benefits of the economy recovering and banks have room to run with rising rates,” said Ken Leon, director of equity research at CFRA Research.
Leon said that banks will also benefit from the improving financial health of the US consumer. That will boost the banks’ credit card, student loan and auto lending portfolios. The housing market is likely to remain strong as well.
James Shanahan, the senior equity research analyst at Edward Jones, added that expectations are “reasonably high” for the banks.
But he thinks that the top financial firms should have no problem delivering strong results, particularly due to the healthy demand for initial public offerings and blank check special purpose acquisition company (SPAC) deals, which help generate robust fees for the investment banks.
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