The earnings season is finally here! As the tradition goes in Wall Street, the banking sector will be the first to reveal its cards.
America’s biggest bank, JPMorgan Chase (JPM), reported third-quarter results on Wednesday. The bank was expected to report Q3 earnings per share (EPS) of USD 3 but managed to eke out EPS of USD 3.74 on higher-than-expected revenue of USD 30.44 billion.
Since March 2020, shares of the banking sector have risen by 120%. Throughout the summer of 2021, banks’ performance was dull, as markets started having doubts about Q3 performance.
source: Wall Street Journal
Here is a little brief about banking sector performance.
JPM spent billions of Dollars in savings during 2020 to decrease liquidity risk and pay consumer and commercial loans interest. But once the economy started to recover, it shifted to making profit.
In 2020, the U.S. government put a major effort by injecting the markets with Dollars to keep the economy balanced. As such, businesses and people have enough cash, which means that they no longer need to borrow money from banks anymore, at least for the time being.
According to data released by the Federal Reserve (FED), Americans borrowed about 1% more since mid-2021. This suggests that people didn’t find the need to borrow money at that time.
Even if people are borrowing, the lending profits for banks are still low because the FED is keeping the interest rate between 0% and 0.25% since 2020.
On the other hand, Wall Street is shining as trading activity is rising, and stock trading revenue is still above pre-pandemic levels.
For now, we can say that banks have the early lead of this earnings season.