Can Bank Stocks Sustain Recent Momentum?

Core Insights - JPMorgan shares have decreased by over -3% since late November, while Wells Fargo and Citigroup have shown varied performance since the election [1][2] - The overall operating environment for major banks has improved due to a favorable macroeconomic outlook and a more permissive regulatory regime [4] - Investment banking revenues are expected to rise significantly, with JPMorgan likely seeing gains exceeding +20% [11] Performance Analysis - Since the November elections, JPMorgan shares are up +2%, while the S&P 500 index is slightly negative [1] - Over the past year, JPMorgan, Citigroup, and Wells Fargo have outperformed the broader market [3] - The Zacks Major Banks industry is projected to earn +4.4% higher earnings in Q4 2024 on +3.3% higher revenues [16] Economic Indicators - The bond market's reaction to the December jobs report has led to a reduction in the yield curve's steepness, which is beneficial for net interest income (NII) for banks [6] - Loan demand has shown signs of improvement, with a +1.8% growth in December, marking the best rate in over a year [7] - Current bankruptcy levels are approximately 30% below pre-COVID averages, indicating improved household balance sheets [9] Earnings Expectations - JPMorgan is expected to report earnings of $4.02 per share, up +1.3$40.9 billion, up +6.1% [12] - Wells Fargo is anticipated to report EPS of $1.34, up +3.9$20.5 billion, up +0.1% [14] - Citigroup is expected to report earnings of $1.24 per share, up +47.6$19.6 billion, up +12.1% [15] Valuation Metrics - Despite strong performance, major bank stocks remain undervalued compared to conventional metrics [19] - The Zacks Major Banks industry is currently trading at 66% of the S&P 500 forward 12-month P/E multiple, indicating potential for valuation expansion [21]