Shares of banks and other financial institutions rose ahead of earnings season.
"Financials will kick off earnings season on Friday" with a report from JPMorgan Chase, said J.D. Joyce, president of Houston financial advisory Joyce Wealth Management. "To me, the thing to watch is how are yield curve dynamics impacting net interest margins." The cost for banks to borrow money overnight remains higher than the interest rates the banks earn on longer term loans, Joyce noted. This situation, known as an inverted yield curve, makes it harder for banks to turn a profit.
For small- and mid-cap banks, "the recent rally means the bar for earnings is high," said analysts at brokerage Morgan Stanley, adding that an anticipated economic slowdown could affect credit quality for smaller banks' clients.
The failure of the "Santa Claus" rally -- stock-market strength at the start of the year -- was a major psychological blow to stock investors, said Joyce. For that reason, the S&P 500 rally on Monday, which took it to the brink of positive territory, will boost sentiment, Joyce said.
Bank of America will recognize a $1.6 billion charge in the fourth quarter related to the transition away from the London Interbank Offered Rate benchmark.
Write to Rob Curran at rob.curran@dowjones.com
(END) Dow Jones Newswires
01-08-24 1823ET
