Bank stocks and ETFs have been soaring on Wednesday thanks to increases in banking profits that beat analyst expectations.
JPMorgan Chase & Co. reported an almost 5 times increase in quarterly profits thanks to surging markets and an economic recovery that enabled the bank to mobilize $5.2 billion in funds that it had set aside to cover bad loans.
JPMorgan Chase announced a record quarterly profit of $14.3 billion, or $4.50 a share, smashing the $3.10 a share forecast by analysts polled by FactSet. A year earlier, JPMorgan reported a quarterly profit of $2.87 billion, or $0.78 a share. The bank reported revenue of $32.27 billion, a gain of 14% from a year earlier.
While the nation’s largest bank bested analysts’ projections on top and bottom lines, shares of the bank fell 1%.
Meanwhile, shares of Goldman Sachs advanced 4.7% after the bank smashed analysts’ expectations for first-quarter net profits and revenues, thanks to robust performance from the firm’s equities trading and investment banking divisions.
Wells Fargo also reported strong earnings and revenue, helping to lift the bank’s stock 4%.
The news was bullish for banking ETFs like the KBW Bank Index (BKX), which climbed 1.75%. Bank shares have done well so far in 2021, with the KBW Bank Index beating the S&P 500.
“The first wave of Q1 big bank results look pretty much as strong as most analysts had expected – even stronger actually,” said JJ Kinahan, chief market strategist at TD Ameritrade. “It’s possible that we’re in a powerful market that’s in a forgiving mood when it comes to bad news. The path of least resistance for stocks continues to seem to be to go higher, with the market climbing a wall of worries that just doesn’t go away.”
A Reemerging Economy?
For S&P 500 companies overall, analysts are projecting a spike in corporate profits given to an improving economic situation and strong consumer spending.
“We could see upwards of 30% year-over-year earnings growth in the first quarter. That would be the most we’ve seen since coming out of the financial crisis,” Ryan Detrick, chief market strategist at LPL Financial, told Yahoo Finance. “That bar is a little bit higher, but we think once again corporate America will step up and justify a lot of the valuations that we see here,” he added.
After the coronavirus pandemic sacked the U.S. economy last year, JPMorgan and other big banks squirreled away billions of dollars in loan-loss reserves to prepare for a potential deluge of consumer and business defaults. While the funds damaged quarterly profits for most of 2020, the banks are now cashing in on their diligence, thanks to the fact that most major losses never materialized.
For bank ETFs that mean big gains as well. Investors can look to the banking sector with assets like the Financial Select Sector SPDR Fund (XLF), SPDR S&P Regional Banking ETF (KRE), and iShares U.S. Financials ETF (IYF).
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