Things feel different as U.S. banks gear up for another quarterly earnings season. For the first time in years, they face lofty expectations.
Bank of America, J.P. Morgan Chase, and Wells Fargo all report fourth-quarter earnings on Friday.
Analysts expect per-share earnings in the period to rise by 36% from a year earlier at Bank of America, one of the biggest beneficiaries of higher interest rates. They see earnings rising 7.6% at J.P. Morgan Chase and falling 2.9% at Wells Fargo, which benefits less than others from rising rates.
Even more important will be the banks’ forecasts for 2017 and their commentary on the many trends expected to benefit them under a Trump administration. Besides higher interest rates, this includes expectations for financial deregulation, faster capital returns, lower taxes and more trading activity.
On interest rates, many banks have outlined how much extra interest income they would earn if rates shoot upward across the board.
Trading activity is the second major variable to watch. This surged in the second half of 2016 after years of declines on events like Brexit and the U.S. election.
Investors will want to hear if banks expect this bump to fade away. Higher growth in the U.S., further Federal Reserve tightening, and continued uncertainty over Brexit could be a recipe for elevated trading volumes for some time.
But trends in rates and trading, to say nothing of Donald Trump’s policies, are likely to support bank valuations for the foreseeable future.
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