Interactive Investor

Q4 results preview: forecasts for US bank and tech stocks

Share prices are back near record highs after a shaky start to 2024, but companies must match expectations or better to keep them there. Here’s what the experts predict will happen in the week ahead.

11th January 2024 09:14

by Graeme Evans from interactive investor

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America’s major banks are set to report lower earnings from tomorrow as the quarterly results season gets under way against a rising tide of Wall Street optimism.

The profitability of Citigroup Inc (NYSE:C), Bank of America Corp (NYSE:BAC) and US bellwether JPMorgan Chase & Co (NYSE:JPM) is likely to have been squeezed by bad debt provisions and their need to pay more for deposits.

Data provider FactSet’s preview of the fourth quarter shows the financial sector, which includes insurers, brokerages and payment firms, is predicted to report the fourth-highest (year-over-year) earnings decline of all 11 sectors at minus 3.1%. This is driven by a 21% fall for the banking industry.

Despite the pressure, shares in the sector have joined a wider rally as investors bet on an imminent turn in interest rates and a soft landing for the US economy.

Shares in JP Morgan, which is the largest US bank in terms of balance sheet, are up 25% since the end of October and Citigroup has rebounded by 38% after weakness for much of 2023.

As well as the earnings figures, the focus will be on the default trends at a time of much higher interest rates, and whether 2024 will see a pick-up in merger and acquisition activity after a barren run for investment banking fees.

When JP Morgan chief executive Jamie Dimon presented third-quarter results in October, he said US consumers and businesses “generally remain healthy” but that the former were spending down their excess cash buffers.

He warned the war in Ukraine and Middle East conflict may have far-reaching impacts on energy and food markets, global trade and geopolitical relationships. “This may be the most dangerous time the world has seen in decades,” he added.

More than 70% of the S&P 500 companies that are scheduled to report earnings in the next fortnight are from the financial sector, starting with Wells Fargo & Co (NYSE:WFC), Bank of America, BlackRock Inc (NYSE:BLK), Citigroup and JPMorgan Chase tomorrow.

Next Tuesday sees Morgan Stanley (NYSE:MS) and The Goldman Sachs Group Inc (NYSE:GS) in the spotlight before the results season gets going on 23 January with Netflix Inc (NASDAQ:NFLX), Procter & Gamble Co (NYSE:PG) and Johnson & Johnson (NYSE:JNJ). Tesla Inc (NASDAQ:TSLA) is the first of the Magnificent Seven stocks to report on 24 January.

The electric car maker is expected to be the only one of the seven heavyweights to report lower earnings, with Bank of America forecasting a 39% decline.

In contrast, the other six of NVIDIA Corp (NASDAQ:NVDA), Inc (NASDAQ:AMZN), Apple Inc (NASDAQ:AAPL), Microsoft Corp (NASDAQ:MSFT), Meta Platforms Inc Class A (NASDAQ:META) and Alphabet Inc Class A (NASDAQ:GOOGL) are poised to report cumulative year-on-year earnings growth of 56%. The rest of the market is expected to see earnings fall 6%, although the bank expects this decline to reverse by the first quarter of 2024 with growth of 3%.

The previous results season in October and November marked the beginning of an earnings recovery, with growth of 4% year-on-year.

Bank of America is more optimistic about the fourth quarter than the Wall Street consensus after forecasting 6% earnings growth to $56.50 a share. It points out the second quarter of an earnings recovery has accelerated 11 out of the last 14 times since the 1950s.

The bank expects a 4% downside to consensus earnings per share forecasts for 2024, but does not believe this is a compelling reason to be bearish on equities.

It adds: “Our analyst survey into 2024 painted a goldilocks scenario for stocks: higher margins, led by efficiency gains and alleviating non-labor cost pressure, with positive pricing and volume.

“Our analysts’ one-liner (quotes) into Q4 earnings suggest the goldilocks scenario is well intact. While risks remain, fundamentals are improving and analysts sound more optimistic than they did in Q3.”

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