Big Banks Prepare to Report Q1 Results

For the last few years, earnings seasons often roared out of the gate with solid results from the largest handful of U.S. investment banks. That ground to a halt in January when several big banks delivered fair to disappointing Q4 results that didn't do much to impress Wall Street.

Looking ahead to the Q1 financials sector earnings, analysts don't expect a major rebound when the first major investment banks report Friday. Still, a macro environment that includes hope for falling rates, relatively easy credit, and a growing economy might give the industry a wide runway to improve in quarters to come. That's reflected in earnings expectations for the remainder of the year beyond Q1.

But the wild card is the economy.

If inflation falls and the Federal Reserve delivers some of its expected 2024 rate cuts, that could bode well for the biggest banks by helping current economic green shoots keep flourishing in the spring sun. Stronger mortgage application demand, growing mergers and acquisitions (M&A) activity, fresh initial public offerings (IPO), and general trading enthusiasm all helped bank stocks gain ground in Q1.

If coming economic data don't support the market's and Fed's optimistic take for the remainder of 2024, banks could struggle, especially if yields start to climb again and consumers and businesses cut back on their spending. Rates don't necessarily have to fall for banks to succeed, but the industry would probably welcome stability.

"If you ask a banker if they like higher or lower interest rates, they'll tell you what they really like is stable interest rates because it allows them to make their money without interest rate volatility," said Kevin Hincks, senior manager of education at Schwab. "At this point, stable rates are making their businesses easier, along with a good U.S. economy."