MW Companies are expected to post their best earnings growth in 3 years. The biggest gains won't come from Big Tech.

By Bill Peters

Financials should be the biggest profit gainers this earnings season - but as Trump returns, trends could be 'much more volatile than Trump 1.0,' analyst says

Fourth-quarter earnings season is here. Wall Street expects the best profit growth in three years - led by the financial industry, as consumers keep hanging on while prices keep going higher. For the whole year, forecasts call for similarly strong gains.

But when executives - from the big banks like JPMorgan Chase & Co. $(JPM)$ this week, followed by Big Tech companies and everyone else in the weeks to come - talk over the results with analysts, the focus could come down to one person: President-elect Donald Trump.

Markets jumped following Trump's presidential election win in November. But over the past few weeks, they've seesawed amid questions about whether interest rates can go lower, and how the economy might shake out during Trump's second term. Over the past month, the S&P 500 index SPX has slipped around 3%.

"I still think we're going to make a run [from the] second quarter to the end of the year, with some stumbles along the way," said Jay Woods, global strategist at Freedom Capital Markets. "It'll be much more volatile than Trump 1.0, that's for sure. We're seeing it now."

That volatility is likely to emerge as a topic on earnings calls, and it could come from any number of places ahead as markets weigh the prospect of more deregulation under Trump, which they'd prefer, against the prospect of steeper tariffs, which they would rather avoid. Then there's the stuff markets maybe haven't fully processed, like any potential ambitions for the U.S. to control, say, Greenland, Canada or the Panama Canal.

Other wild cards ahead, Woods said, include the relationship between Trump and Elon Musk, and plans by Musk and Vivek Ramaswamy to coordinate steep government cuts and the impact those would have on jobs and companies that do business with Washington. Other things to watch, he added, were the strong dollar DXY as well as CEO changes at companies like Starbucks Corp. $(SBUX)$ and Nike Inc. $(NKE)$, both of which are trying to turn their fortunes around.

Still, Wall Street analysts expect per-share profits for companies in the S&P 500 to jump 11.7% year over year for the fourth quarter, according to a FactSet report published on Friday. If that figure sticks, it would mark the best growth for the index since the fourth quarter of 2021, when price hikes and dislocations due to the pandemic fed the bottom line for some industries. Fourth-quarter net profit margins for S&P 500 companies are expected to be 12%.

Those gains would come as consumers remain selective following three years of price increases that continue to keep housing and basic necessities and services out of reach for many people, even as the Federal Reserve lowers borrowing costs.

With grocery bills and other costs of living still high, many have turned to the biggest retailers for discounts, while fast-food chains have launched an array of value deals to win back reluctant diners. Still, U.S. online spending during the holiday shopping season reached a record $241.4 billion last year, according to Adobe.

As more companies report results, the usual handful of major tech companies will remain the index heavyweights. But as the fourth-quarter earnings season chugs along, analysts believe that industry won't see the biggest per-share earnings growth. Rather, FactSet said, the largest increases are expected to come out of the financials sector, which is set to generate per-share profit increases of 39.5%. Within that sector, banks are expected to put up earnings growth of 187%.

Much of the banking industry's anticipated growth this time around, FactSet said, is due to a weaker performance a year ago, when caution over the economy and FDIC-related charges weighed on profits.

JPMorgan, Wells Fargo & Co. $(WFC)$, Goldman Sachs Group Inc. $(GS)$ and $Citigroup Inc(C-N)$. (C) report results on Wednesday, while $Bank of America Corp(BAC-N)$. $(BAC.SI)$ and Morgan Stanley $(MS)$ report on Thursday. Earnings calls from the banks could offer fresh color on the current appetite for deal-making and IPOs amid the prospect of a lighter touch from regulators when Trump takes office. More detail on a lawsuit against the Federal Reserve, brought by banking-industry trade groups seeking more transparency into the central bank's stress tests, may or may not come up.

Sean Ryan, vice president and associate director for the banking and specialty-finance sector at FactSet, said in Friday's report that fourth-quarter results will likely be mixed. Net interest margins and loan and deposit growth will likely be positives. Potential negatives include noninterest income, the impact from higher long-term rates and concerns about consumers still struggling to pay their off debt.

He added that "the most important new information is likely to be refreshed forward guidance on the earnings calls, which is likely to skew bullish based on late-fourth-quarter conference commentary, a steeper yield curve and industry anticipation of a more favorable regulatory environment than has existed in several years."

Still, Woods said, the next few weeks could be a bumpy ride as the Big Tech megacaps, which do a lot of work in propping up the markets, have started to weaken, and as many names in the S&P 500 remain below their 200-day moving averages, a key metric of a stock's health.

Those Big Tech names - including Nvidia Corp. $(NVDA)$, Alphabet Inc. $(GOOGL)$ $(GOOG)$, Apple Inc. $(AAPL)$, Meta Platforms Inc. $(META)$, Microsoft Corp. $(MSFT)$ and Amazon.com Inc. $(AMZN)$ - report results in the coming weeks. But as we cross the two-year anniversary of the artificial-intelligence boom - or at least the boom of talking a lot about it, or trying to cram it into seemingly any existing technology - analysts continue to debate whether the billions spent will contribute more than wasted energy and a proliferation of AI slop.

Woods said Wall Street's line of questioning for Big Tech could shift from spending on AI toward the results, as Alphabet and Amazon try to increase usage of assistants like Gemini and Rufus.

"These are the things you're spending money on," Woods said. "Are you starting to see results? What kind of revenue will this generate? Will it create jobs? People are worried about jobs being eliminated."

This week in earnings

Twenty S&P 500 companies were set to report earnings this week, including three Dow Jones Industrial Average DJIA members, according to FactSet. Aside from the banks, trucking and logistics company J.B. Hunt Transport Services Inc. $(JBHT)$ reports. Results are also due from oil major Schlumberger Ltd. $(SLB)$

Health-insurance giant UnitedHealth Group Inc. $(UNH)$, the parent of UnitedHealthcare, will publish quarterly earnings on Thursday. The results will be the first since the shooting of UnitedHealthcare Chief Executive Brian Thompson last month, an incident that led to an eruption of anger online from people who felt ignored by the company, and the broader health system, in favor of profit. What executives say - or don't say - about the matter could be telling.

The call to put on your calendar

JPMorgan Chase: With a new administration set to take hold in Washington, devastating fires in Los Angeles, wars abroad and an anti-incumbent wave shaking up governments across the world, Wall Street on Wednesday will be waiting for JPMorgan CEO Jamie Dimon's take on all of it. As one of the world's biggest banks, JPMorgan's results offer a broad view into the economy - from corporate deals, to housing and office space, to credit-card spending - and its earnings call, as usual, will be required listening for many investors.

The numbers to watch

Other bank results and outlooks: Results from the other banks reporting this week will narrow the lens on different aspects of the markets and the economy. Goldman Sachs and Morgan Stanley will offer a deeper look into deal-making, trading and wealth management. Citigroup reports as it restructures and pulls back from international markets and faces scrutiny from regulators. And as the postelection rally for bank stocks gives back some gains, some analysts say Bank of America is still due for a run higher.

-Bill Peters

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January 14, 2025 20:31 ET (01:31 GMT)

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