Banks are Headed Towards Record Earnings

January 13, 2020
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Just over a year ago, the biggest American banks reported their fiscal year earnings, with a combined profit of $120 million. At the time, the banking industry was benefitting from a strong American economy and corporate tax cuts introduced by the Trump Administration.

The one-time gains from tax reform were a significant aspect of growth, but 2019 might be an even bigger year, despite the tax situation normalizing. Analysts are predicting more records to be broken, and investors could gain big.

Another Breakout Year for the Banks Industry?

The current market sentiment is that the final quarter of 2019 will be even bigger than 2018, which would push the banks towards new records. There are several factors that will contribute to earnings growth.

  • The Federal Reserve has gradually lowered interest rates, but the environment has been mostly stable. This has allowed banks to plan and protect earnings from interest. Lower rates can reduce earnings, but lending activity is up overall, which offsets the difference.
  • The U.S. economy is still expanding. New jobs are being added to the market every month, and real wages are rising. Consumers and households are in a better position, and spending is still strong. This boosts corporate profits and lending activity associated with businesses and consumers.
  • The Federal Reserve interest rate is expected to remain stable in 2020. This will get some apprehensive borrowers off the sidelines and engaged in the lending market.

The Stocks to Watch This Earnings Season

The most important banking stocks to watch this week include:

  • JPMorgan Chase (NYSE: JPM) – One of the larger banking stocks, this one is up 36.19% over the last 12 months.
  • Wells Fargo (NYSE: WFC) – This stock has increased just 9.67% over the last year, but strong fiscal results mean there’s a 3.89% dividend today.
  • Bank of America (NYSE: BAC)Bank of America has grown 33.46% on the stock market in the last year.
  • Citigroup (NYSE: C) – Citigroup has outperformed most of its peers with 39.80% growth in its stock over the last year. Its dividend is high with a yield of 2.57%.
  • Morgan Stanley (NYSE: MS) – This bank has underperformed its peers in the stock market with 25.08% growth in the last year, but it offers a compelling dividend with a yield of 2.68%.
  • Goldman Sachs (NYSE: GS) – With growth of 36.84% over the last 12 months, this is one of the best performing big bank investments.

These banks will deliver earnings statements over the next week. Investors can use this earnings season to review past performance and make stock decisions based on projections for the year ahead.

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