The US stock market was closed on Monday due to Martin Luther King Jr. Memorial Day. Although there were no trades, multiple companies in the US stock market will release their financial statements for the fourth quarter of 2023 this week. From the financial companies that have already released their financial reports, they are still paying for last year's banking crisis in the United States. However, analysts remain optimistic about the overall performance of the US stock market in the fourth quarter.
The financial industry is the first to emerge, and the consequences of the regional banking crisis are evident
Last weekend, several large Wall Street banks were the first to release their Q4 financial reports, but the data was disappointing.
Among them, JPMorgan Chase achieved a net profit of 9.307 billion US dollars in the fourth quarter, a decrease of 29% month on month and 15% year-on-year, respectively; Bank of America achieved a net profit of 3.144 billion US dollars, with a month on month and year-on-year decrease of 59.7% and 55.92%, respectively; Wells Fargo Bank achieved a net profit of $3.446 billion in the quarter, a 40% decrease compared to the previous quarter; However, Citigroup's net loss for the quarter was $1.839 billion, which was a loss from the previous quarter.
The decline in performance of major Wall Street banks is related to a special evaluation by the Federal Deposit Insurance Corporation (FDIC) after last year's banking crisis in the United States.
The special assessment fee of FDIC is aimed at recovering losses incurred by Deposit Insurance Funds (DIFs) due to the protection of uninsured depositors of Silicon Valley banks and signature banks. According to the Federal Deposit Insurance Act, the FDIC must take this action after the systemic risk decision on March 12, 2023. This special assessment is mainly aimed at the banks that benefit the most from systemic risk decisions, especially large banks and regional banks with large amounts of uninsured deposits.
In a statement released after its financial report, Wells Fargo Bank stated that its fourth quarter expenses were $15.8 billion, including $1.1 billion in layoffs and $1.9 billion in special evaluation fees paid to the FDIC.
Citigroup suffered a quarterly loss of approximately $1.8 billion, equivalent to a loss of $1.16 per share. In contrast, Citigroup's earnings per share in the previous quarter were as high as $1.63, compared to $1.16 per share in the same period last year. Citigroup stated that it includes some one-time projects, of which $780 million is related to the severance pay provided by the bank to employees affected by the restructuring. In addition, the group also recorded operating expenses of up to $1.7 billion for the quarter to pay for FDIC special evaluation fees.
Bank of America stated that part of the reason for the decline in profits was due to a special assessment by the Federal Deposit Insurance Corporation (FDIC) of $2.1 billion, as well as $1.6 billion in fees resulting from the financial industry's collective withdrawal from the London Interbank Offered Rate. In addition, Bank of America's net interest income and revenue from fixed income and foreign exchange trading businesses have declined, and the overall expenditure scale has also increased year-on-year. As the second largest bank in the United States, Bank of America's latest performance has also prompted people to re-examine the pessimistic situation faced by American consumers and businesses as the Federal Reserve maintains high borrowing costs for a longer period of time.
Goldman Sachs Group and Morgan Stanley will release their financial reports before the end of this Tuesday's trading session.
Artificial intelligence leads the overall performance of the US stock market, still optimistic
In addition to the banking industry, several large companies including Alcoa have also released their Q4 2023 financial reports this week.
In fact, in the third quarter of 2023, the performance of the S&P 500 index constituent stocks in the United States was quite good, with overall profits reaching a new high since the first quarter of 2022. According to a report from Bank of Communications International, the operating revenue of S&P 500 index constituent stocks reached $468.5 per share in the third quarter of last year, with a growth rate of 5%. The quarterly earnings per share were $47.7, with a year-on-year growth rate of 7.4%; But the net profit margin slightly decreased from 10.5% in the previous quarter to 10.2%.
The Leading Economic Index (LEI) released by the World Federation of Large Enterprises in the United States typically leads the S& The profit growth rate of the P 500 (S&P 500 index) in the next 12 months is about 3 months, and the current LEI growth rate has bottomed out, indicating that the overall downward space for US stock profits is limited and may remain stable in the future.
Although the performance in the third quarter of 2023 was surprising, analysts hope for clear signs that the profit recession has ended. However, there is no guarantee that this will happen at the moment. If the seven major technology giants are excluded, the profits of S&P 500 index constituent stocks may not be as optimistic as they appear.
Regarding the performance of the US stock market in the fourth quarter of 2023, Quincy Krosby, Chief Global Strategist at LPL Financial, said, "We are gradually emerging from a profit recession, and in this sense, the performance of the fourth quarter of 2023 will set the tone for 2024. During the transition from a period of high inflation to a phase where inflation is easing but has not yet reached the level required by policymakers, performance guidance is extremely important."
But technology companies benefiting from the new wave of artificial intelligence may bring surprises to the market. According to data from Cresset Capital LLC, analysts predict that artificial intelligence will increase global GDP by $7 trillion over the next 10 years. But analysts want to focus on what this currently means for profits.
Data shows that the seven major components of the S&P 500 index, from Apple to Meta, may see a 46% increase in profits in 2023, while the rest of the index may decline by 7.1%.
In the second half of this year, this gap may begin to narrow. The S&P 500 index (excluding the "Big Seven") is expected to recover growth with first quarter profits and gain growth momentum over time, with a profit growth rate of 19% in 2024, higher than the "Big Seven".
"The focus is not only on artificial intelligence. We also want to know about the situation of American consumers, and banks have a good grasp in this area. We also want to see the latest trends in cyclical industries such as energy, real estate, and healthcare," said Marshall Front, Chief Investment Officer of Front Barnett Associates