Outlook for US Big Banks: A Tension Between Optimism and Caution

Wall Street is on the brink of gaining crucial insight into the future prospects of the largest US banks as the US Federal Reserve begins to lower interest rates amidst ongoing economic uncertainty. The upcoming earnings season, which will be kicked off by JPMorgan Chase and Wells Fargo and continued next week with Citigroup, Morgan Stanley, Goldman Sachs, and Bank of America, could significantly influence investor sentiment. Bank reports are of central importance as they provide insight into both consumer health and the economy as a whole. The stock values of US banks rose by almost 10 percent in the third quarter, driven by optimism about interest rate cuts and a robust economy. This heightens the anticipation of whether expectations were justified or set too high. Banks have experienced a remarkable resurgence this year, led by the KBW Bank Index. Analysts are currently divided, oscillating between buy and hold recommendations, making the upcoming earnings season eagerly anticipated. The discussion is focused on interest income development, loans and deposit growth, as well as credit quality and consumer spending behavior. A notable point was raised by JPMorgan's President Daniel Pinto, who warned that analysts' expectations regarding net interest income and costs for the next year might be too optimistic. Piper Sandler analyst R. Scott Siefers warns of potentially rocky developments despite long-term optimism for 2025. Wedbush analyst David Chiaverini expects the benefits of a lower interest rate environment to become more evident in the coming quarters. However, mixed results are to be expected in the near term quarter. Despite the rate cuts, investments in bonds and consumer loans could be profitable for some banks, emphasized JPMorgan analyst Vivek Juneja. Bank analyst Jason Goldberg from Barclays predicts that following the US presidential election in November, markets will cool down and uncertainty will decrease. This could benefit banks, regardless of the election outcome, as stimulated economic growth is likely to have a positive effect on banks.