- The stock market is in a bullish phase with the earnings season right around the corner.
- Investors are eyeing forward guidance alongside current earnings to maintain the bullish momentum.
- The banking sector, which recently faced a stress test, will kick off Q2 earnings with JP Morgan, Wells Fargo leading the charge.
As we enter the second quarter of the 2024 earnings season in the United States, market sentiment remains bullish, with major indexes consistently reaching new historical highs. Investors are eager to see the current earnings results and forecasts for the coming quarters, which will be critical in sustaining this momentum. Leading the charge are the large banks, which continue their upward trajectory alongside the broader market.
The banking sector was put through a stress test recently. This test is designed to assess the resilience of individual institutions in crisis scenarios. The positive outcomes from these tests have further fueled demand, bolstering investor confidence.
Strong Bullish Trends Amid a Lack of Bearish Arguments
Yesterday, both the DOW and NASDAQ indexes hit new all-time highs, underscoring the robust buying sentiment. July historically tends to be a strong month for the stock market, particularly for the S&P 500, and this year’s performance is no exception. Macroeconomic factors, such as better-than-expected job report readings for May, have alleviated recession fears, providing further support for the bulls.
The ongoing revolution in artificial intelligence is also driving the bull market, with technology stocks, led by Nvidia Corporation, experiencing significant gains. Nvidia surged 4.57% yesterday, resuming its upward trend after a brief correction. If the impressive growth rates seen among the Big Seven tech companies continue, the bullish sentiment is likely to persist.
JP Morgan’s Dividend Raise Post Stress Test Success
Following the successful completion of the Federal Reserve’s stress tests for banks with over $100 billion in assets, JPMorgan is set to raise this year’s dividend. The board has approved an increase from $1.15 to $1.25 per share, along with a $30 billion share buyback plan, reflecting the bank’s strong financial health and resilience.
Source: InvestingPro
Ahead of the earnings release on July 12, with consensus expectations of $4.24 per share in net income and $43.639 billion in revenues, JP Morgan’s stock is trading near historical highs at $210 per share. Strong demand momentum supports the bullish trend, and only significantly weak results could potentially disrupt this upward trajectory, which is not the anticipated scenario.
Wells Fargo’s Strong Position despite Limitations
Wells Fargo retains significant upside potential, driven by recent developments and favorable market conditions. The bank has completed the Federal Reserve’s stress test, similar to JP Morgan. However, the bank remains constrained by a six-year-old Fed-imposed limit of $1.95 billion in maximum assets, restricting its expansion.
Source: InvestingPro
Primarily focused on individual consumers rather than investment banking, Wells Fargo faces higher deposit rates due to rising interest rates, resulting in proportionately lower returns on its loan portfolio. Despite these challenges, the bank’s share price continues to rise. Analysts remain optimistic, highlighted by 13 upward revisions and only one downward revision ahead of the upcoming quarterly results.
Given its revenue structure, the bank should be a beneficiary of the start of the US interest rate cut cycle, which could take place this September.
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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel, or recommendation to invest. Any investment decision and the associated risk remains with the investor.