A Mixed Bag for Big Banks

The Q4 earnings season has kicked off with a mixed bag of results for big banks, leaving investors to sift through the noise of revenue discrepancies and FDIC fees. Bank of America saw a -17.3% year-over-year decline in earnings, largely due to the FDIC fee, despite beating Q4 estimates. This echoed a similar story from other major players, with JPMorgan, Wells Fargo, and Citigroup also faced challenges in topping consensus revenue expectations.

Net Interest Earnings and 2024 Outlook

While Bank of America continued to exhibit robust net interest earnings, the overall performance indicated a slight dip compared to the previous year. Similarly, JPMorgan, Wells Fargo, and Citigroup are anticipating flat to modest declines in net interest earnings for 2024, reflecting the expected impact of declining rates and credit demand moderation.

Credit Quality and Sector Scorecard

Despite a slight weakening in credit quality metrics, the overall scenario remains within acceptable ranges. However, the vulnerability in the commercial real estate space poses potential challenges, particularly for regional banks. With results from 22.8% of the sector’s S&P 500 market capitalization in, total bank earnings are up +6.3% year-over-year on +2.3% higher revenues, with a 100% beats percentage for EPS and a 50% revenue beats percentage, reflecting an emerging trend beyond the Finance sector.

Zooming Out: A Bigger Picture

Looking at the big picture, current bottom-up consensus earnings show a positive trend for the S&P 500 index, with expectations for a +0.1% earnings growth and +2.2% higher revenues in 2022 Q4. This optimistic outlook is further reinforced by an anticipated upward trajectory in revenue growth over the next three quarters. Additionally, the long-term forecast also suggests a steady earnings landscape over the next two years.

Despite previous concerns over a potential earnings recession, the recent stability in earnings estimates indicates a shift in the narrative for sectors like Technology and Retail, which experienced notable declines in estimates. Moreover, the positive uptrend in earnings estimates for the Tech sector implies a significant contribution to the aggregate earnings picture for the S&P 500 index.

Challenges and Opportunities

However, sectors such as Transportation, Industrial Products, and Consumer Discretionary continue to face pressure on earnings estimates. Yet, with positive movements in the Retail, Autos, Aerospace, and Utilities sectors, there are still pockets of opportunity amidst the challenges. As we expand into the upcoming reporting docket, dominated by major regional banks and brokerage firms like Goldman Sachs and Morgan Stanley, the landscape is filled with possibilities and pitfalls.

Early Trends and Prudent Caution

As we navigate through these early days of the reporting season, it’s crucial to exercise prudence, recognizing that these initial results are just a fraction of the bigger picture. While the journey may seem noisy and challenging, it’s crucial to stay attuned to the evolving earnings landscape and be prepared for the unexpected twists and turns that lie ahead.