JPMorgan CEO Jamie Dimon says the U.S. economy is ‘resilient.’ How do other bank execs feel?

Now, in the week ahead, we’ll see if the big banks’ cautious, even muddied, optimism about consumers, markets and businesses filters through to the rest of the financial industry.

Morgan Stanley and Goldman Sachs report fourth-quarter results in the week ahead. Other financial heavy hitters report as well, like credit-card giant Discover Financial Services
DFS,
+0.34%,
PNC Financial Services Group Inc.
PNC,
+3.08%,
Interactive Brokers Group Inc.
IBKR,
+1.09%
and Charles Schwab Corp.
SCHW,
+1.69%.

Those financial institutions will be reporting results after what Edward Jones analyst James Shanahan described as “noisy” and “pretty soft across the board” quarterly updates from the banks that reported results on Friday.

“The debit- and credit-card spending data that JPMorgan and Bank of America publish suggests that the consumer was still spending in the fourth quarter,” Shanahan told MarketWatch. But he added: “The growth rate and purchase volumes on credit cards and debit cards has certainly slowed.”

Reflective of the noise and softness that Shanahan identified, Bank of America’s fourth-quarter profits tumbled, as trading revenues and lending income lagged. Wells Fargo said it had set aside a more money to cover potentially souring credit, as higher prices continue to squeeze consumers trying to pay their bills. Citigroup was gouged by shocks to the economies in Russia and Argentina, and said it would cut 20,000 jobs by the end of 2026 amid a bigger organizational revamp.

Some analysts expect banks to cut costs this year, amid pressure to lean harder into an embrace of technology. And they expect choppiness in the markets and deal making, as investors await more clarity on potential interest-rate cuts from the Federal Reserve, following a two-year campaign to subdue inflation. And brace for the fallout from conflicts abroad and whatever chaos lies ahead in the U.S. presidential election.

JPMorgan on Friday said it was modeling six interest-rate cuts from the Fed this year, which would ding its net-interest income, a gauge of a bank’s ability to profit off of interest collected on loans. But those rate cuts aren’t a guarantee, and speculation persists over how far interest rates need to fall to actually help consumers.

Meanwhile, concerns about commercial real-estate lending have hung on, as those who abandoned offices for remote work show only tepid signs of returning to the prepandemic status quo. And despite the market rally at the end of last year, trading revenues — which both Morgan Stanley and Goldman Sachs depend on — have been a disappointment elsewhere. Investors, Shanahan said, may have been reluctant to sell into the rally and take a hit on taxes. And he said there may have been seasonal, holiday-related factors, as well.

See: Office-loan delinquencies hit 5-year high in 2023 and likely will rise even higher, Moody’s says

“You don’t have quite as many investors or traders at their desks,” he said. “Business activity tends to slow down quite a bit.”

This week in earnings

Twenty-three companies, including two from the Dow, are set to report quarterly results this week, according to a FactSet report released Friday. Outside the financial industry, trucking and logistics company J.B. Hunt Transport Services Inc.
JBHT,
+0.90%
reports results on Thursday, as Wall Street awaits a bigger rebound in shipping demand after the pandemic’s buying boom fizzled. Citi analyst Christian Wetherbee, in a research note on Friday, said there would be “little tolerance for further degradation.”

The call to put on your calendar

Morgan Stanley, new leadership: Morgan Stanley’s
MS,
+1.72%
fourth-quarter results on Tuesday will be the bank’s first under its new chief executive, Ted Pick, whose tenure began on Jan. 1. Pick — a three-decade veteran of the bank who has overseen parts of its trading and investment-banking businesses — told CNBC in October that there would be “no change in strategy” for the bank, which built out its wealth-management business under the leadership of Pick’s predecessor as CEO, James Gorman, in the wake of the 2008 financial crisis.

But the year ahead, and the potential volatility that might come with it, will also be a test of whether that strategy of not changing the strategy will hold. Gorman, in October, said the M&A and underwriting activity would “explode” once the Fed signaled it would stop raising interest rates, as businesses shake off worries over the economy and get back to making deals. But others haven’t been so sure.

Sean Ryan, vice president for the banking and specialty-finance sector with FactSet, said in a report this month that he expected investment-banking revenues to remain weak, but still worth watching, as banks try to predict the Fed’s path for cutting rates, making it easier for businesses to borrow money.

“Management commentary regarding the outlook for M&A may be especially interesting, given the crosscurrents of cheaper financing but higher valuations, and the heightened market belief in a soft-landing scenario,” he said. “Wealth-management revenues will benefit from the impact of the year-end rally on both equity and fixed income [assets under management], as well as from more firms moving past the worst cash sorting headwinds.”

Analysts could also end up trying to parse signs of differences between Pick and his predecessor that emerge during Morgan Stanley’s earnings call. And after Morgan Stanley spent billions over recent years to buy up brokerage E-Trade, investment firm Eaton Vance and other M&A targets, Shanahan said analysts would have questions about growth.

“Will he be more focused on Morgan Stanley’s existing franchise and brand to grow organically?” he said. “Or will he pursue a similar or perhaps even more aggressive acquisition strategy as CEO?”

The number to watch

Goldman Sachs results: Morgan Stanley’s rival Goldman Sachs
GS,
+1.40%
also reports on Tuesday. The results will follow a run higher for the stock that began in October, and what BMO analysts last week characterized as a difficult year for Goldman, as recession concerns continued to hang over the economy and wars in Ukraine and the Middle East kept investors cautious. But those analysts downgraded the stock, citing its exposure to fluctuations in trading revenues and investment-banking fees. That exposure, they said, could increase, as it gains share in those segments and backs away from its ambitions for consumer lending.

“Alas, in the current environment,” the analysts said, “no stock story is perfect.”