Inflation may stay high in 2022
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New York (CNN Business)The prospect of higher interest rates this year is spooking investors in tech stocks and other high growth sectors. But it’s a different story for big banks.
Bank stocks are off to a solid start of 2022, extending gains from the second half of last year.
The Invesco KBW Bank ETF (KBWB), which has Bank of America (BAC), Wells Fargo (WFC), JPMorgan Chase (JPM), US Bancorp (USB) and Citigroup (C) as its top holdings, is up more than 8% already this year and has gained more than 19% in the past six months. That’s better than the broader market.
JPMorgan Chase, Citi and Wells Fargo will tell investors how they did during the fourth quarter and what to expect in 2022 when they report earnings on Friday.
BlackRock (BLK), the world’s largest asset manager and owner of the popular family of iShares exchange-traded funds, also reports earnings Friday.
US Bancorp and Bank of America release their earnings on Wednesday, January 19. So does investment banking powerhouse Morgan Stanley (MS). Goldman Sachs (GS) is due to report earnings on Tuesday, January 18.
Banks will benefit from rising rates, provided that they don’t go up too rapidly and hurt demand for mortgages, credit cards and other loans. Although higher rates make lending more profitable for banks, there is a limit to how high rates could go before they cool off the red hot housing market.
Financial firms are also thriving thanks to the boom in the stock market, which has helped boost trading activity. The stock surge has also fueled more demand for mergers and initial public offerings, and led to a jump in lucrative investment banking fees.
Together, the trends could supercharge bank earnings. Analysts are predicting that JPMorgan Chase’s earnings per share soared nearly 70% in 2021.
Wall Street is also forecasting substantial profit increases for Citi, which is now under the leadership of new CEO Jane Fraser and Wells Fargo, which is finally starting to recover after years of underperforming due to its fake accounts scandal.
But investors want to hear what these banks have to say about the rapidly spreading Omicron variant of coronavirus and how that could impact the markets and economy for the rest of the year.
Several top Wall Street firms, including JPMorgan Chase, Goldman Sachs and BlackRock, have delayed plans to have their workers return to their trading floors, despite pressure from Eric Adams, the new mayor of New York City, to get people back into Big Apple offices.
Investors will also be curious to hear what JPMorgan Chase CEO Jamie Dimon and other top bank execs have to say about the recent spike in long-term bond yields.
There are worries the Federal Reserve may hike rates more aggressively than expected this year in order to tamp down inflation. If that happens, it could put a chill in both the housing and stock markets.
All eyes on the economy
Speaking of inflation, the US government will report its December consumer price index figures Wednesday.
CPI rose 6.8% over the 12 months ending in November to a nearly four-decade high. Even after excluding volatile energy and food prices, core inflation was up 4.9% over the past year to its highest reading since June 1991.
The market is worried that inflation pressures may not ease anytime soon. The Fed now seems to share those jitters. The central bank raised its forecasts for overall and core price increases for 2022 at its meeting last month.
The minutes of the Fed’s December meeting showed that the central bank was concerned about “surprisingly high inflation” due to “lingering supply bottlenecks.”
Still, American consumers have kept spending, although higher prices might be starting to squeeze some budgets. The government will release retail sales figures for the crucial holiday month of December on Friday.
Retail sales skyrocketed more than 16% in the 12 months ending in November, but growth slowed from October to November.
Monday: US wholesale trade; Tilray (TLRY) earnings; Tokyo Stock Exchange closed for market holiday
Tuesday: Brazil consumer inflation; Albertsons earnings
Wednesday: US CPI; Jefferies (JEF) and KB Home (KBH) earnings
Thursday: US jobless claims and producer prices; Delta Air Lines (DAL) and Taiwan Semiconductor (TSM) earnings
Friday: US retail sales, industrial production and consumer sentiment (U. of Michigan); JPMorgan Chase, Citigroup, Wells Fargo and BlackRock earnings
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