This year is shaping up to be a better time for bank stocks than in 2023. But, investors shouldn’t get too excited ahead of earnings season. Club name Wells Fargo will deliver fourth-quarter results before the opening bell on Friday. Our other financial holding, Morgan Stanley , will report on Tuesday. As important as the quarterly numbers are, investors will also focus closely on forward guidance as companies deliver their first looks at how they see business going in 2024. Wall Street’s biggest banks look better positioned in 2024, with the Federal Reserve expected to cut interest rates later in the year. Last year’s sharp rise in rates, as good as they can be for traditional lenders, sparked the collapse of Silicon Valley Bank in March 2023 and led to other regional institution failures. While the fallout did not impact big banks like Wells Fargo and Morgan Stanley directly, all bank stocks were painted with the same brush. A tumultuous year ensued as the industry grappled with a crisis of confidence. But in the final couple of months of 2023, banks took a sharp turn higher. Wells Fargo gained about 6%, and Morgan Stanley surged more than 9% over the past month. Widening that out to a three month period, Wells Fargo and Morgan Stanley rose 23% and over 16%, respectively. With rallies of those magnitudes, we don’t think investors should jump the gun on earnings even if the prospects of an economic soft landing seem more likely. “The market may be a little bit too optimistic about how many [Fed] cuts are in place this year,” Jeff Marks, the Investing Club’s director of portfolio analysis, said recently, urging near-term caution around banks. While Morgan Stanley and Wells Fargo have solid underlying fundamentals, we prefer to see expectations lower rather than higher heading into the prints. “The number one risk to the banking sector going forward is still a relatively high level of interest rates,” Columbia Business School Professor Tomasz Piskorski told CNBC….
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