"The anchor of asset pricing" is making waves: Will the Wall Street giants leading the way in the earnings season be the saviors of the US stock market?

A new round of US earnings season officially kicked off this week, with Wall Street financial giants such as Goldman Sachs Group, Inc., Morgan Stanley, and JPMorgan Chase taking the lead. The performance of these financial giants and their outlook for future performance will have a significant impact on the US stock market, and even global stock markets, especially at a time when the "anchor for global asset pricing" is pressuring stocks and other risky assets. The market is eagerly anticipating Wall Street giants to kick off the new round of US earnings season with better-than-expected growth. With the 10-year US Treasury yield, known as the "anchor for global asset pricing," soaring to its highest level since October 2023, the US stock market has recently entered a phase of downward adjustment under continued upward pressure on yields. Recently, US bond yields and stocks have shown a strong negative correlation, with the three major US stock indexes plummeting as the 10-year Treasury yield rises. Therefore, any positive economic news that could push up US bond yields, such as stronger-than-expected labor market data and CPI, retail sales figures, would be negative for stocks and other risky assets. From a theoretical perspective, the 10-year US Treasury yield is equivalent to the risk-free rate indicator "r" at the denominator end in the important valuation model - the DCF valuation model in the stock market. When other indicators (especially the cash flow expectations at the numerator end) do not change significantly, if the denominator level is higher or continues to operate at historical highs, the valuation of risk assets such as tech stocks, high-yield corporate bonds, and cryptocurrencies that are at historical highs undoubtedly face a collapse. However, if the cash flow expectations at the numerator end can continue to exceed expectations, it could significantly raise the pricing range for stocks and other risky assets in the market. Cash flow expectations at the numerator end are heavily based on performance in the earnings season, making upward revisions to corporate profits crucial for pricing trends in stocks and other risky assets. After the start of the US earnings season, as S&P 500 index companies gradually announce actual Q4 performance and future profit guidance, data that meets or exceeds analysts' expectations are expected to significantly boost investor sentiment in the US stock market. Analysts at Bank of America Corp pointed out that option trading pricing shows that after earnings announcements, the average volatility range of individual stocks in the S&P 500 index may reach as high as 4.7%, setting a record for the largest fluctuations in return days in history. This expected volatility range reflects the uncertainty in the current market environment, especially regarding inflation uncertainty and the prospect of further Fed rate cuts, which has made investors uneasy. Therefore, hedge fund traders and investors are beginning to turn their attention to the new earnings season in the hope of finding some comfort, at least for US companies, all is still well. The focus of this week's earnings disclosure will be on the fourth-quarter performance and outlook from JPMorgan Chase(JPM.US), Citigroup (C.US), Wells Fargo & Company(WFC.US), Bank of America Corp(BAC.US), BlackRock, Inc.(BLK.US), Goldman Sachs Group, Inc.(GS.US), Morgan Stanley(MS.US), and Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR(TSM.US). Wall Street financial giants kick off a new round of earnings season JPMorgan Chase is scheduled to release its earnings before market open on Wednesday, which will officially open the upcoming earnings season. This is not only a key test for the rebound of the US stock market after two years of intense gains, but also a focus of market attention. According to the latest data from Bloomberg Industry Research, analysts generally expect S&P 500 index constituent companies to report a 7.5% increase in earnings for the fourth quarter, which is the second highest pre-earnings forecast in the past three years, setting a high bar for beating expectations. "The fourth quarter earnings season may be one of the most important US earnings seasons we have seen in a long time," said Larry Adam, chief investment officer at Raymond James. As the Federal Reserve is unlikely to cut rates as quickly as investors hoped last year, instead shifting to a hawkish stance of "maintaining high rates for the long term," corporate performance becomes even more important for boosting bullish sentiment in the market, and performance indicators have always been one of the biggest drivers of stock market rallies. Analysts generally expect Bank of America Corp's overall earnings per share in the fourth quarter to show a slight decline from the strong profit in the third quarter, but still achieve a significant year-over-year increase, despite the Fed cutting rates by 100 basis points over the past quarter, US benchmark rates remain relatively high. The ongoing high rates in the US, as well as the end of the inverted US Treasury yield curve, are likely to drive commercial banks' net interest income growth in the fourth quarter and the next few quarters, and strong capital market activity may push non-interest income through healthy fee income, thus investment banking business is expected to continue to rebound. Analysts expect fourth-quarter earnings to not reach a new high, with a quarter-over-quarter decrease expected. However, consensus expectations for most monetary center/financial center type banks have improved in the past six months. For example, Morgan Stanley's fourth-quarter EPS consensus expectation is $4.04, up 3.8% in the past month and nearly 14% in the past six months. Analysts' optimism about Morgan Stanley's fourth-quarter EPS has increased significantly, primarily due to the trading business growth brought about by the surge in US stocks in November-December due to Trump's victory, and the benefits to the investment banking business from the global stock market IPO recovery. Analysts have raised consensus expectations by 5.0% in the past month and nearly 14% in the past six months. Analyst Kenneth Leon from CFRA expects the strong US economy to support loan growth.Furthermore, this will result in achieving a "moderate growth" in net interest income, but this growth will be partially offset by lower rate businesses. At the same time, Leung expects a rebound in the capital market's IPO business, growth in funds and custody services, and a significant boost in non-interest income from asset/wealth management businesses.The Chairman and CEO of Bank of America Corp, Brian Moynihan, recently stated that the bank's loan growth rate exceeds industry averages, deposits are increasing, and high-cost deposits are gradually decreasing. Analysts expect the bank's fourth quarter net interest income to reach $14.3 billion, compared to $14.1 billion in the third quarter. Analyst Bezi Grascek of Morgan Stanley predicts that Wall Street financial giants will see strong growth in capital market-related revenues in the fourth quarter, especially in trading and equity capital markets, surpassing expectations. She views JPMorgan and Citigroup as top stocks in the US stock market rebound. In her fourth quarter earnings preview report, she wrote: "Despite bank executives issuing strong trading business guidance for the fourth quarter of 2024 at industry conferences in early December, surprisingly exceeding expectations, we expect trading business revenues to be even higher due to the typical December seasonal slowdown not occurring." Grascek also mentioned that with incremental revenue growth in capital markets, steady or decreasing compensation ratios, and lower non-compensation expense ratios, strong performance in capital markets will significantly increase operating leverage. Analyst Leon from CFRA predicts that Goldman Sachs Group, Inc. and Morgan Stanley will lead the investment banking industry with higher concentration of capital market activities. Meanwhile, Bank of America Corp and Citigroup lean more towards traditional banking businesses, with JPMorgan maintaining a more balanced business distribution. Analyst Erika Najarian from UBS Group AG pointed out several favorable trends for financial giants such as banks capital market revival, expectations of relaxed regulations under Trump, rising yields, good credit quality, and nearing expectations of upper limits. She wrote in a recent report: "These themes suggest that earnings per share may see positive revisions, with financial centers potentially being most impacted." She favors large banks like Bank of America Corp, Wells Fargo & Company, PNC Financial Services Group, Inc., and Huntington Bank Group. Analyst Vivek Jhunjhunwala from JPMorgan expects strong investment banking business, particularly in stock underwriting and syndicated loans, to drive fourth quarter profits. The two strong areas in the fourth quarter are the expectations for loans to non-bank Financial Institutions, Inc. and the steepening US Treasury yield curve, influencing credit and net interest margins. When the yield curve steepens, the difference in bank lending rates expands, allowing them to charge higher rates on loans while paying lower rates on deposits or short-term borrowings. The 2/5-year, 2/10-year, and 2/30-year US Treasury yield curve inversions that topped financial market headlines since early 2022 ended in 2024, with the "Trump 2.0 era" starting in 2025, the large debt and borrowing scale under the "MAGA fiscal framework" in the Trump 2.0 era may continue to grow, potentially leading to a steeper US Treasury yield curve. Among currency center/financial center banks, Morgan Stanley favors Citigroup, expecting the group to benefit from strong growth in investment banking business; its trading business revenue growth will be driven by looser comparative benchmarks, making it easier to outperform competitors. Jhunjhunwala wrote that Bank of America Corp will also benefit from capital market-related businesses, but recent agreements under the Banking Secrecy Act are likely to limit its earnings. Jonathan Wee, head of the Cash Flow Club investment team, believes that JPMorgan, the largest commercial bank in the US in terms of assets, is likely to achieve better-than-expected profits in the fourth quarter. Growth drivers include higher investment banking and asset management fees, net interest income, and credit loss provisions may decrease given the strong job market and high net worth clients. Morgan Stanley expects that debt-sensitive banking giants will benefit from the steepening US Treasury yield curve, noting that trust-type banks like State Street Corporation and large regional banks like US Bancorp have followed this trend. Wall Street giants may release optimistic performance expectations under Trump's push Trump is set to return to the White House for a second term on January 20th, promising to reduce federal regulations on large companies, especially financial giants, and further tax cuts, increased oil production, and strict immigration policies. This indicates that the US economy's inflation will strengthen, which is seen as a positive factor for the stock market, with leaders in industries such as financial, large technology, defense, and fossil fuels likely to benefit significantly. Therefore, analysts generally expect that under Trump's relaxed regulatory and tax policies, management teams of Wall Street financial giants like JPMorgan, Goldman Sachs Group, Inc., and Bank of America Corp will release optimistic performance expectations in the latest earnings conference calls and further drive expansion on the ground. "It is clear that this administration will be more favorable to Wall Street and financial trading activities. These sentiments are not new. Financial stocks have long been seen as the favored sector during Republican administrations.Choosing the industry is mainly due to expectations of relaxed regulations and creating a more favorable environment for major financial giants and large-scale mergers and acquisitions. " This was stated in a report by the investment strategy team of J.P. Morgan Private Bank in the United States. J.P. Morgan stated that its investment team is seeking more stocks in the financial and asset management industries for the portfolio in 2025.Bonjour, comment a va aujourd'hui ?