Wall Street was mixed hours after major banks released their earnings reports.
Three major Wall Street banks are reporting Q3 earnings today: JPMorgan Chase, Wells Fargo, and Citigroup. The reports released by JPMorgan Chase and Wells Fargo beat market expectations. Despite market fears and the effects of inflation and higher interest rates on consumer behavior, bank profits were actually boosted. According to Eric Kuby, chief investment officer at North Star Investment Management Corp. in Chicago, “What you are seeing is that the big banks with really diverse businesses had quite good earnings.”
Arguably, the banking crisis affected mostly the financial sector. Consumer trust sentiments egged low due to rising concerns and cautions about the financial system overall. However, JPMorgan Chase, Wells, Citi, and PNC earning reports show a converging decline in the average deposit. Once again, the Federal Reserve tightening policy made it harder for consumers to take loans and was the main reason for not making deposits as well. Still, the mentioned bank’s shares jumped by more than 3% in today’s session, driving a better-than-expected profit margin.
Still, the rising concerns were that rising interest rates would result in higher debt servicing, hampering productive investment. Housing demand weakens as people focus on payment affordability. Higher borrowing costs lead to reduced profit margins. Derivatives and credit markets are negatively affected. Variable-rate credit card and home equity line payments increase. Increased defaults on debt affect banks. Corporate buybacks and dividends relied on cheap debt. Capital expenditures hinge on low borrowing costs while rising costs boost the deficit/GDP ratio.
On the other hand, investors will turn their interest to Bank of America and Goldman Sachs earnings reports. The two banks are reportedly expected to release their earnings reports on Tuesday, while Morgan Stanley will report on Wednesday.
Market expectations include concerns about net interest margins, limited expense flexibility, and weak loan growth. Morgan Stanley analyst Betsy Graseck noted that investors have been more optimistic about banks. She says, “We expect net interest margins to be under pressure for longer, not much expense flex until at least January, and weak loan growth.”
Goldman Sachs highlights three key headwinds: net interest income trajectory in 2024, Basel III impact, and potential credit and reserve increases. Net charge-offs are expected to increase, reaching $5.3 billion for the four largest U.S. banks, the highest since Q2 2020, due to rising delinquencies.
Meanwhile, despite the boost in earnings reports, Wall Street still struggles to rebound. Wall Street main indexes fell on this week’s last trading day; the S&P 500 declined by 0.52%; technology stocks plunged; and the Nasdaq was down by 1%. Meanwhile, the Dow Jones roughly added 0.14% as of 15:45 a.m. ET, New York time.
Elsewhere, in Asia, Japan experienced a decline of 0.6%, while Hong Kong saw a significant drop of 2.3%. China also dipped by 0.6%, and India had a minor decrease of 0.2%.
In Europe, around midday, London’s market was down by 0.7%, Paris showed a 1% decrease, and Frankfurt also exhibited a 1% decline in its market performance.