JPMorgan, Wells Fargo, Bank of America and Morgan Stanely are part of Zacks Earnings Preview
If you didn't know how banks made money, you would be justified in assuming that their business must be really exposed to tariffs. That will be a logical interpretation of bank stock performance in the ongoing tariff-induced market turmoil.
Big banks like JPMorgan, Wells Fargo, Bank of America and Morgan Stanely relative to the S&P 500 index since February 19th. Two of these three banks are on deck to kick off the 2025 Q1 reporting cycle for the Finance sector by reporting their results before the market's open on Friday, April 11th.
We all know that the banking business isn't subject to tariffs. But as cyclical operators, their business is heavily exposed to trends in the broader economy, which in turn is seen as weighed down by the ongoing tariffs uncertainty.
There is no denying that risks to the broader economic outlook have increased, with many economists raising their recession odds and lowering their GDP growth expectations. Simply looking at the chart above, which shows the performance of these bank stocks since February 19th, makes it clear that market participants see the going getting more challenging for these banks.
We intuitively understand this as the demand for credit decreases in a softening economic environment. At the same time, the quality of the bank's assets suffers, as a portion of its existing borrowers are unable to pay back their loans.
Monthly loan volume data from the Federal Reserve has been showing a modest acceleration in loan demand in the first three months of the year, with commercial and industrial (C&I) loans and home-equity loans modestly up. The overriding issue for bank stock investors, however, is whether these trends can be sustained in the current macroeconomic environment. The stock market performance of these bank stocks suggests that they aren't hopeful on that count.
With respect to credit quality, the problems in the commercial real estate (CRE) market are well-known and already adequately provisioned for at the major banks. Beyond CRE, aggregate bankruptcies in the U.S. have risen significantly from the Covid-driven low of early 2022, but the growth rate has been leveling off in recent months. We see this trend in early-stage credit card delinquencies as well, with the flat year-over-year growth rates in recent months indicative of favorable developments with respect to net charge-off rates this year.
As with loan demand, the key question on the credit quality front will be expectations for the coming periods in a macroeconomic backdrop that is at best showing moderating growth, if not an altogether recessionary downturn.
The outlook for the investment banking business is likely the biggest victim of the deterioration in market sentiment. This is notable, as management teams have consistently flagged the steady expansion in deal pipelines in recent quarters. At the start of the year, many in the market had been expecting to see signs of the hoped-for rebound in these Q1 results, but that has now been delayed, at least while the tariffs issue is front and center for the market.
JPMorgan is expected to report $4.60 per share in earnings (down -0.7% year-over-year) on $43.01 billion in revenues (up +2.6% YoY). The stock was up nicely on the last earnings release on January 15th, reflecting positive commentary about the outlook. Estimates have been steadily going up, with the current $4.60 per share estimate up from $4.54 a month ago and $4.25 three months back.
Wells Fargo is expected to report EPS of $1.23 (down -2.4% year-over-year) on $20.8 billion in revenues (down -0.3% YOY). Estimates for Q1 have largely been stable since the quarter got underway, with the current $1.23 estimate down from $1.24 a month back but up from $1.19 per share three months back. Wells Fargo were shares up following the last quarterly release on January 15th.
For Morgan Stanely, the expectation is of $2.32 per share in earnings (up +14.9% YOY) on $16.8 billion in revenues (up +11.2%). The revisions trend has been positive, with analysts nudging their estimates higher since the quarter got underway. As with JPMorgan and Wells Fargo, Morgan Stanley shares were also up following the last quarterly release.
The Zacks Major Banks industry, of which JPMorgan and Wells Fargo are a part, is expected to earn +0.7% higher earnings in 2025 Q1 on +5.3% higher revenues. Please note that this industry brought in roughly 50% of the Zacks Finance sector's total earnings over the trailing four-quarter period.
Q1 earnings for the Zacks Finance sector are expected to be up +1.8% from the same period last year on +2.8% higher revenues.
Despite the big bank stocks' outperformance over the past year, they are still cheap on most conventional valuation metrics.
Relative to the S&P 500 index, the Zacks Major Banks industry is currently trading at 61% of the S&P 500 forward 12-month P/E multiple. Over the last 10 years, the industry has traded as high as 78% of the index, as low as 52%, and median of 62%.
The Q1 reporting cycle will really get going this week with the aforementioned bank results. But several companies with fiscal quarters ending in February have been reporting results in recent weeks. Thus far, we have seen such February-quarter results from 19 S&P 500 members. All of these February-quarter results are combined with our March-quarter results.
Total earnings for these 19 index members are up +9.4% from the same period last year on +5.7% revenue gains, with 57.9% of the companies beating EPS estimates and 68.4% beating revenue estimates.
As you can see here, these early companies appear to be struggling to beat consensus estimates, with the EPS beats percentage for this group of companies the lowest in the preceding 20-quarter period. This is disconcerting, but we want to caution against reading too much into these early results, given the sample size.
The expectation is that Q1 earnings will be up +6% from the same period last year on +3.7% higher revenues, which would follow the +14.1% earnings growth on +5.7% revenue gains in the preceding period.
We have been experiencing a relatively high magnitude of negative revisions to estimates for the current period (2025 Q1), even before the more recent signs of weakness in data that drove the recent run of soft guidance from several companies.
As noted earlier, these are more negative revisions to Q1 estimates since the start of January compared to the comparable periods of the preceding few quarters. Not only is the magnitude of negative revisions to Q1 estimates more pronounced relative to the last few quarters, but it is also more widespread.
Since the start of the period in January, estimates have come down for 13 of the 16 Zacks sectors, with the biggest declines for the Conglomerates, Autos, Basic Materials, Aerospace, Consumer Discretionary, and others.
The three sectors whose Q1 estimates have moved up since the quarter got underway are Medical, Utilities, and Construction.
The Tech sector, whose estimates have consistently been positive over the past year, is also suffering negative revisions to Q1 estimates. Optimism about the AI investment cycle suffered a psychological blow following China's DeepSeek announcement. The resulting shift in market sentiment has been weighing on the space ever since, contributing to the underperformance of AI-focused stocks this year. Tariff headwinds add to the sector's worries, as a large portion of Tech hardware is manufactured in Asia.
The sector still remains a key growth driver in Q1 and beyond, with 2025 Q1 earnings for the Tech sector expected to be up +12.6% on +10.2% higher revenues. A lot will be riding on the evolving earnings expectations for the Tech sector, which has been a pillar of growth over the last two years.
The recent run of underwhelming guidance releases are coming at a time of growing anxiety about the macroeconomic backdrop, with many in the market starting to worry about the U.S. economy's near-term growth momentum. Uncertainty about the Trump administration's tariff policies is starting to appear in business and consumer confidence measures, and some have begun to worry that the ongoing public sector job cuts will eventually spill over into the private sector as well.
Depending on where the emerging tariff regime settles, earnings estimates will need to come down in response. The ongoing market weakness is essentially a reflection of this diminished earnings expectations.
For more details about the evolving earnings picture, please check out our weekly Earnings Trends report here >>>>Looking Ahead to the Q1 Earnings Season
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Yahoo
5 minutes ago
- Yahoo
2 High-Flying Artificial Intelligence (AI) Stocks to Sell Before They Plummet 74% and 30%, According to Select Wall Street Analysts
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The Hill
4 hours ago
- The Hill
Tech companies building massive AI data centers should pay to power them
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Chicago Tribune
4 hours ago
- Chicago Tribune
More young people going into farming, but it's still few of them
At the Porter County Fair on Thursday, Ron Birky, of Morgan Township, said he retired as a farmer after 46 years. 'I was raised on a farm,' he said, but that's not a guarantee he would become a farmer. 'I was one of five kids, and I was the only one to go into farming,' he said. 'I always enjoyed it. That was really the only thing I wanted to do after high school,' Birky said. But becoming a farmer isn't easy. The average age of a Hoosier farmer is 56. Out of 94,282 producers in the U.S. Department of Agriculture's 2022 Census of Agriculture, only 1,962 were under age 25. Compared to the previous survey, conducted in 2017, there were more younger farmers going into the business, noted Todd Davis, chief economist at the Indiana Farm Bureau. 'I can say part of that is that coming out of the experience of 2020, there might be more people wanting to look at having a change,' he said. The COVID-19 pandemic has created long-lasting changes in society. 'I guess you can read into it younger people are seeing opportunities,' Davis said. 'My guess would be a lot of them would be what I call the specialty farmers, smaller scale, maybe taking advantage of farmers markets, selling to local people,' Davis said. That could include operating an on-farm store and more aggressively marketing products to local customers. 'It's a little more niche,' he said. Cody Boone, 17, a member of the Pleasant Pioneers 4-H club, raises cattle. 'I want to do something with farming. I'm not exactly sure what part,' he said. Boone is being raised on a farm, 'a lot of work all the time, especially during birthing season.' 'The farm is more my grandpa's,' he said. Cody's uncle has a farm in LaCrosse, so working for his uncle has possibilities, too. 'I definitely want to do something with them,' he said. Cody's father, Corey Boone, 42, married into farming. His father-in-law had a dairy farm, then raised feeder calves, then goats. 'I kind of got into helping him do all that,' Boone said, although his full-time job is as a collision repair technician, working on auto bodies. With a small hobby farm like his, 'you probably put in more than you get out,' Boone said. Along the way, he has learned a lot about farming. 'One of the first lambs we had, it got out and we chased it for over an hour. We chased that lamb for miles,' he said. Raising goats has been an adventure, too. 'They will climb on everything. They will eat everything,' including flowers in the garden, Boone said. Part of specialty crop production, Davis said, is being an entrepreneur and gauging what the market is. 'Some of those operations also get into a little agritourism,' like an apple orchard, Davis said, with a focus on fall tourism. 'Frankly, I think it was kind of a donut stand. That was the most popular part of the farm experience.' For the traditional corn-and-soybeans farmer, getting into the business has some barriers for a young person. Land is the first need. That means buying or leasing, renegotiating the terms of the lease every few years. 'If you want to grow your business, you have to keep expanding your land base,' Davis said. 'Commodity agriculture is known for having margins that are constantly shrinking,' he said. 'There's always a push for greater efficiency, cost management, using every input in the most efficient way possible.' Trying to support a family? You'd want off-farm income not only for the cash but also for the benefits, especially if you're raising children. Machinery is another big expense. Farmers can find used equipment or lease it, but that will require getting loans. 'Younger farmers may not have much of a credit history, and they may not have a lot of equity to help secure loans,' Davis said. That's where their parents or grandparents come in. They need a previous generation to help them get started. And, of course, they need to know how to farm. 'That's a prerequisite for every career, isn't it?' Where younger farmers might have an advantage over their counterparts nearing the end of their careers, Davis said, is that younger farmers tend to be more interested in pursuing technology and newer, innovative production practices. They're probably more comfortable with electronics, computerization and so forth. Farm Bureau provides scholarships for ag majors, primarily, to help them get started. 'There are college Farm Bureau chapters at Purdue, Huntington and Vincennes,' getting young farmers into Farm Bureau and the networking side of industry. 'They'll make more than just friends,' Davis said. They'll bounce ideas off each other, too. 'That's something that Farm Bureau helps foster in its younger farmers program.' Agriculture gets a lot of attention this time of year, what with county and state fairs allowing youngsters to show off the fruits of their labor. 'The county fair experience is really good for the younger generation,' Davis said, along with Future Farmers of America. 4-H, and living on a farm, helped Annie Martin's kids understand where meat really comes from – not just a grocery store but all the steps along the way, from farm to slaughterhouse, before reaching the grocery. Being in 4-H, 'it's responsibility all the way around. It's time with your family. It's time management,' she said. Martin also married into the farming business when she said, 'I do,' alongside husband Blake Martin. Their kids understand the rigors of farming. 'They have to be accountable at a really young age,' she said. Her son is planning to become a farmer. 'He's been able to drive a loader since he was 6,' Martin said. 'He has a work ethic that's pretty incredible.' He's heading to the state fair after winning the tractor driving competition at the county fair, the proud mom said. 'Farmers never really retire. He slowly learns to operate something new every year,' she said. Her daughter Brooklyn Martin, 11, a Morgan Sodbuster, said she wants to be a zoologist, not a farmer. 'I just like animals a lot, so I thought that would be fun.' Soon after Ron Birky graduated from high school, a distant cousin retired and leased his 165 acres to Birky. 'At one time, we had some hogs,' he said, but corn and soybeans were Birky's two staples. Birky was in 4-H for all 10 years. He's seen his kids go through 4-H, and now his grandchildren are going through it. The oldest grandchild, now entering fifth grade, thinks he wants to be a farmer. 'We still own 600 acres,' Birky said, but the machinery was all sold at auction two years ago. If that grandchild goes through with his current career choice, it won't be easy. 'Boy, it's tough,' Birky said, for a young person to become a farmer. 'There's 600 acres that we own, and that's half the battle.' But it's a fierce battle. 'If you're not raised in a farming family, it's virtually impossible' to go into farming, Birky said. 'The capital investment is unbelievable,' he said, with combines and other machinery exceeding $1 million to buy new. Then there's the risk involved. This year hasn't had much rain. 'I don't need to go to Vegas,' Birky said, because farming is its own gamble. Birky retired at 67, his dad at 80 or so. 'He basically didn't retire, I just took over everything,' Birky said. Young 4-H'ers are considering their options. Norah Grimmer, 13, of Valparaiso, tended Maverick, her grand champion steer, at the fair on Thursday. She's planning to study animal science at the University of Notre Dame to become a veterinarian. Elizabeth White, 16, a member of the Center Wildcats, plans to attend Valparaiso University. 'I'm trying to decide between mechanical and electrical engineering,' she said. After that comes law school. 'We have a small hobby farm,' White said, raising poultry and rabbits along with a few sheep not exhibited at the fair. '4-H has really, really raised my confidence,' she said. 'I know a lot of veterinarians, and they have to deal with a lot of attitudes.' Alexis Leek, 18, of Morgan Township, is a member of the Hustling Hoosiers club. 'I was thinking about working with horses,' she said, in the criminal justice field. That involves riding horses in parades and other events, not putting the handcuffs on felonious equines. 4-H 'definitely helped me with people skills and talking with people I don't know,' she said. Heather Cox, of Morgan Township, aged out of 4-H but was master showman last year, she said while visiting the horses – and people – in the horse barn. She's at Purdue University, where she's thinking of studying animal behavior. Like Leek, Cox said 4-H has polished her people skills. Now she's passing the torch to others. Shiloh Otey, 15, a member of the Hustling Hoosiers, is exhibiting horses, rabbits and poultry, and helping her sister with goats. 'I want to be a veterinarian,' she said. 'I like working with bigger animals.' Leek and Cox said although their career paths don't include farming, they wouldn't rule out raising animals on a small farm when they're older.
