With the S&P 500 rising just around 2% year to date, major banks, including JPMorgan JPM, Bank of America BAC, Morgan Stanley MS and Goldman Sachs GS, have witnessed significant price performance. Shares of JPMorgan, BofA, Morgan Stanley and Goldman have spiked 7.3%, 9%, 8.4% and 4.2%, respectively, year to date. However, shares of Citigroup C declined slightly.
Notably, low client activities and less volatility across capital markets, which resulted in weak trading revenues for banks in 2017, are expected to rebound this year. Rising volatility at the very beginning of 2018 is expected to break the trading revenues slump.
At the RBC Capital Markets 2018 Financial Institutions Conference earlier this week, Citigroup’s chief financial officer — John Gerspach — announced the company’s latest outlook for the first quarter. The bank expects first-quarter 2018 trading revenues to be up by a “low-to-mid” single digit on a year-over-year basis.
The bank expects equities business to record revenues more than $1 billion in Q1, last recorded in 2015. However, management believes investment banking might go down as compared with the prior-year quarter.
Moreover, focused on digitization, this banking giant aims to launch a national digital consumer bank over the next three years. “I am not making an announcement right now, but I would be really disappointed if it was anything close to being three years away,” CFO John Gerspach said at the investor conference. “We really are laying the groundwork for having a national digital bank,” he further added.
Similarly, last week, at the annual Investors’ Day conference, JPMorgan’s management discussed the current macroeconomic backdrop and the path the company is taking to enhance profitability over the medium term, which also included the first-quarter trading outlook.
Management projects first-quarter market revenues to increase in mid-to-high single-digit rate on a year-over-year basis, based on the market conditions. Further, investment banking is anticipated to remain stable or be up slightly year over year.
Notably, both banks hinted at rebound in trading activities, particularly due to solid revenues in foreign exchange, emerging markets and equities trading.
Last year, despite several political and geopolitical developments, and hike in interest rates, which could have incited volatility, subdued inflation in the United States and marginal increase in long-term interest rates, along with absence of specific catalysts, have been a drag on volatility.
Nonetheless, this dismal operating backdrop seems to have ended with the increased volatility recorded year to date on strong gains in emerging markets and equities benefiting banks’ financials.
Among the above-mentioned stocks, Citigroup and Morgan Stanley carry a Zacks Rank #2 (Buy), while BofA, JPMorgan and Goldman have a Zacks Rank #3 (Hold).