Big banks will kick off the third quarter earnings season as JPMorgan (JPM), Wells Fargo (WFC), and BlackRock (BLK) are all expected to report earnings on Friday. Gabelli Funds portfolio manager Macrae Sykes joins Catalysts to break down what investors can expect from the bank earnings ahead and how major firms will be impacted by the Federal Reserve’s rate-easing cycle.
“I think it should be a pretty good earnings season. We do know that there’s going to be some headwinds from NII (net interest income) that’s shifting around a little bit. But the S&P financials (^SPSDMUN) is up about 10% for the quarter, so good anticipation of the results. You have the S&P up 6% during the quarter. That’s good for wealth and asset management contribution in terms of fee revenue. Deposits up 1%, 4% annualized, so that’s supportive of balance sheets. NIMS (net interest margin security), we had this surprise 50-basis-point cut versus 25 in the quarter. That’s not really going to be impactful but that gives a good setup for going forward in terms of the net interest margins normalizing and getting better going into ’25, ’26,” Sykes tells Yahoo Finance.
Thus, he believes that while these earnings will be good for banks, investors will be looking for better acceleration over the next few years as both the consumer and credit are performing well. As the Federal Reserve continues to ease interest rates, Sykes explains that banks that are asset-sensitive, like JPMorgan, will face some pressure when it comes to their balance sheets.
While the size and pacing of the Fed’s next steps are unknown, Sykes explains, “I think the banks will react accordingly and that will be a good environment.” He continues, “And then we’ve seen the rate curve in general flatten out, so stop the inversion. And I think that’s a good path to recovery in terms of managing your liabilities and assets.”
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