Nearly all major banks topped third-quarter guidance, causing their stock prices to skyrocket. However, the sector has not caught on, lagging behind the market since the beginning of the reporting season.
The disconnect reflects the fact that investors are looking to the near future, namely the time period until 2023, and what they see there does not suit them. From the forecast of JPMorgan Chase CEO Jamie Dimon, the economy could face a recession within the next nine months. In the event of a recession, banks will be at a dead end after a long-awaited recovery in core banking services and capital markets, as well as the lows hit during the pandemic.
Bank of America, Wells Fargo and JPMorgan are the three big banks that are ready to continue operating during a recession.
The next few months promise to be challenging for the sector. The housing market is sick, which reduces the amount of lending. Interest income from lending activity will probably not increase. Deal closings have slowed, causing investment bank earnings to fall to the lowest level in a decade. Provisions for possible loan losses are growing.
Bank stocks will inevitably suffer if the economy collapses next year. Sticking with giant banks may be the best way to deal with the consequences of a recession.