Bank previews

Generally, banks perform better in an environment of higher interest rates. But now the question is whether the US economy teetering on recession will impact financial earnings.

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JPMorgan

Higher interest rates are expected to raise banking revenue, but higher costs might end up hurting the bottom line. JPMorgan is unlikely to deviate from that general view of US major banks. Market volatility, however, might be an issue for banks more oriented towards investment. While CME statistics show strong growth in average trading volume over the last quarter, it increases the potential risk for banks. Outlook commentary on the future expectations of loan growth are likely to steal the show during the post-earnings comments. JPMorgan is forecast to report earnings of $2.91 on $31.8B in revenue.

Citi

While revenues for Citigroup are expected to expand, the ongoing restructuring efforts, as well as increased costs, are expected to drive earnings lower. So, traders are likely to be more focused on potential comments on future capital expenditure as inflation bites. In that theme, there is likely to be a focus on loan generation, and whether higher interest rates are leading to people taking fewer loans.
Citi is forecast to report earnings of $1.67 on $18.4B in revenue.

Wells Fargo

The nation's largest consumer lender is expected to buck the trend and report lower revenues. Part of this is related to the expectation that higher interest rates could be starting to scare off customers, so there is likely to be a good amount of focus on net loans. Additionally, fees are expected to be lower as consumer demand weakens. Forecasts for loan development and commentary on the mortgage market is likely to get a lot of attention.
Wells Fargo is forecast to report earnings of $0.82 on $17.5B in revenue.

Morgan Stanley

MS raised eyebrows backing Elon Musk's Twitter takeover deal, and now traders will get a look at the financial impact and expectations. Generally, banks aren't rewarded by investors by taking on riskier projects, even though it could mean a large pay-out for the investment arm of the bank. In that vein, traders will also be keenly focused on any commentary about the future of M&A in a high-interest-rate environment.
Morgan Stanley is forecast to report earnings of $1.57 on $13.4B in revenue.

Best positioned bank

Of the four major banks, Morgan Stanley has seen the most upside and least downside since the covid crash in March of 2020. It soared 300% and has pulled back a maximum of 35% off its peak on February 10, 2022, at $72 last month.

Since the stock trades more than 20% below its market top, the MS share price is officially in a bear market. However, the descending pattern currently unrolling points at an apex that is likely to break soon (up or down). Coupled with a strong MACD bullish divergence, the 50-average around $80 is an important milestone for bulls. Above there, the 200-day equivalent of $92 per share can be observed. In the interim, traders will keep an eye on the swing high of $86.

On the flip side, momentum has not shown decent evidence of demand for the stock yet and another leg down is in the cards. $72 is near-term support, and the measured move off the 50-day resistance brings $63 to the table.

Source: Spreadex trading platform

Key takeaways

The four banks are facing higher costs from increased interest rates despite nearly all of them expecting higher revenues. This makes post-earnings comments all more critical for future direction, but from a technical proposition, Morgan Stanley stands firmer.