Here’s why stocks of big banks like JPMorgan are struggling despite strong earnings

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Top line

Shares of several major banks fell on Friday, even after posting strong quarterly earnings, as reports disappointed investors and some companies warned of rising spending and “inflationary pressures” that could impact future profits.

Highlights

Shares of JPMorgan Chase, the largest US bank by assets, fell more than 5% on Friday despite higher earnings and income expectations.

It was the bank’s smallest profit in the past seven quarters, and JPMorgan’s CFO lowered his forecast for company-wide returns, citing “headwinds” including “Inflationary pressures”.

Citigroup shares also fell more than 2% after reporting strong revenue and earnings, with investors particularly alarmed by the bank’s sharp drop in profits.

The company’s net profit fell 26% in the fourth quarter, with Citigroup attributing the spike in expenses to the steep decline.

The only major bank to report earnings and turn the tide on Friday was Wells Fargo, whose shares jumped more than 3% after better-than-expected earnings and a sharp rise in earnings.

The fourth-largest US bank in terms of assets, Wells Fargo said lending activity was picking up, adding that the latest quarterly results were boosted by a reserve release of $ 875 million that had been set aside to protect against loan losses.

Key context:

Bank stocks have outperformed in recent weeks in a rising interest rate environment, with many analysts predicting a hike in 2022. Rising rates typically allow banks to charge more for loans and produce higher returns on loans. liquidity, which helps to increase profit margins. While the turnover and earnings reported by some major banks on Friday were by no means weak, the reports appear to have disappointed Wall Street, with investors perhaps expecting more.

Crucial quote:

“The big thing that stands out for us is the spending,” Vital Knowledge founder Adam Crisafulli said, predicting that this will “likely be a theme over the next few weeks as additional fourth quarter results roll in. published “. JPMorgan’s rising spending forecast, in particular, is “the most important macro news of the week” as it signals growing risks of wage inflation and headwinds on corporate margins, he says. .

Surprising fact:

Wells Fargo was one of the top performing banking stocks last year, surging 59% and beating JPMorgan Chase and Bank of America, which rose around 25% and 47% in 2021, respectively.

Further reading:

Here’s why stocks are rallying despite another disastrous inflation report (TUSEN)

Stocks soar after Powell said the Fed was not afraid to raise rates further if higher inflation persists (TUSEN)

Ford Surpasses $ 100 Billion Market Valuation As Shares Rise On Hot Electric Vehicle Plans (TUSEN)

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