Today, some of the biggest banks in the U.S. kicked off earnings season (I know, is it earnings season again already?) with mixed results, and their reports reignited fears of a potential 2023 recession. We don't always talk about earnings season in this newsletter, but quarterly earnings are a great time to assess the health of the economy by looking at corporate performance.
JPMorgan Chase, Bank of America, Wells Fargo, and Citi beat analyst expectations on earnings in the fourth quarter thanks in part to higher interest rates that made borrowing more expensive. However, that doesn't mean all of the major banks saw growth. Wells Fargo reported its profit was down 50% from a year ago, on higher reserves and settlement costs. Citi's profit was 21% lower than it was in the same period in 2021.
In its report, JPMorgan predicted a "mild recession" this year, and that has investors concerned. Bank of America also described the economic environment as one that is "increasingly slowing," while Wells Fargo estimated that bank deposit balances—which swelled as Americans increased their savings throughout the pandemic—would decrease over time, returning to "pre-pandemic levels."
While banks tend to perform well in rising interest rate environments, there are still concerns that continued rate hikes will tip the economy into a recession, which is good for no one. As the jobs market has continued to remain resilient, there has been optimism that perhaps the U.S. economy is strong enough to withstand the Fed's rate hikes and avoid a recession altogether. Today's bank earnings raised doubts on that hope.
Stocks are mixed today as investors remain concerned about a recession this year—even if it might be a mild one.
- Kristin
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