Wall Street Sees Shaky Earnings from Big Banks This Week

Introduction

Goldman Sachs has recently upgraded its clients to buy more stocks, citing improving valuations, resilient earnings, and easing inflation as supporting factors for the market. The bank's strategists have raised stocks to overweight for the next three months and bonds to overweight over 12 months. However, the banks' earnings reports this week will be closely watched as they face a test of their confidence. Analysts expect S&P 500 earnings to jump 25% this quarter, and the banks' results will be closely tied to the market's performance.

Expectations and Challenges

The four banks, including Goldman Sachs, Citigroup, JPMorgan, and Wells Fargo, report before Tuesday's opening bell. Goldman Sachs faces a bar of 5% earnings growth, while Citigroup and JPMorgan carry higher expectations of 19% and 17% growth, respectively. Wells Fargo faces a lower bar of 7% growth. If the banks deliver strong results, it could help stocks outside the tech sector start to perform. However, if they fall short, it could weigh on the whole market. Bonds are Goldman Sachs' backup plan either way.

Market Sentiment

Despite Goldman Sachs' bullish outlook, some investors are not buying it. The S&P 500 sits near records, but most stocks do not. In fact, more than half of S&P 500 companies are at least 20% below their highs. Real Estate leads the drawdown, with 97% of stocks down at least -10%, followed by Materials at 96%, Utilities at 94%, and Consumer Discretionary at 92%. Energy has held up relatively well. Interest rates hang over everything, with bond yields near a 24-year high.

Investor Perspectives

Investor Steve Weiss expects banks to cheer new stock listings but stay wary on mergers, citing expensive borrowing. Money manager Jenny Harrington says the market's reaction may matter more than the actual data. Interest rates will likely continue to influence the market, with US inflation data landing on Wednesday.