The big banks have benefited from a confluence of a rising interest rate environment, post-pandemic economic rebound, financially strong balance sheets, a robust housing market, and the easy passage of annual stress tests. Earnings season kicks off in January for all the major financials. The most recent earnings reports from the core financials such as Bank of America (BAC), JPMorgan Chase (JPM), and Goldman Sachs (GS) all reported very strong quarters with stock prices breaking out to all-time highs prior to the Q4 overall market turbulence. The biggest banks, by assets, posted profit and revenue that beat expectations. These results came on the heels of booming Wall Street deals and the release of funds previously earmarked for pandemic-related defaults. The big bank cohort is in a sweet spot of a post-pandemic consumer, with rising rates and balance sheets to support expanded share buybacks and dividend increases. These stocks are inexpensive and stand to capitalize on all these tailwinds heading into 2022.
The pandemic has been going on for two-plus years, and the big banks have navigated the coronavirus volatility over this stretch. Throughout the rolling pandemic, the consumer has been resilient, and the potential worst-case financial downsides did not materialize (i.e., massive loan defaults). In addition, the consumer has been strong in retail, housing, autos and the overall holiday spending was robust.
Bank of America CEO Brian Moynihan stated that whether it was a return to loan growth, credit-card signups, or economic indicators like unemployment levels, the company was back in expansion mode. "The pre-pandemic, organic growth machine has kicked back in," "You see that this quarter, and it's evident across all our lines of business." Loan balances at BAC increased 9% on an annualized basis from the second quarter, driven by strength in commercial loans, the company said. Continue reading "2022 Financials Outlook"