S&P 500 Financials Sector Earnings Preview: Q4 2024

The Financials sector will be a focus for the market during this week, as 80% of the S&P 500 companies that are scheduled to report earnings for the fourth quarter over this period are part of this sector. Companies in this sector that are expected to report earnings during the week include Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo. The Financials sector is predicted to report the highest year-over-year earnings growth rate of all eleven sectors for the fourth quarter at 39.5%.

At the industry level, four of the five industries in the sector are expected to report year-over-year earnings growth, led by the Banks industry at 187%. A large number of companies in the Banks industry are benefitting from easy comparisons to weaker (GAAP) earnings reported in the year-ago quarter due to significant charges related to FDIC special assessments and other items that were included in their GAAP EPS. This industry is also expected to be the largest contributor to year-over-year earnings growth for the sector. If the Banks industry were excluded, the estimated earnings growth rate for the Financials sector would fall to 11.0% from 39.5%.

Within the Banks industry, the Regional Banks sub-industry is projected to report year-over-year earnings of $3.1 billion compared to a year-ago loss of -$3.8 billion, while the Diversified Banks sub-industry is projected to report year-over-year earnings growth of 91%. At the company level, Truist Financial ($0.88 vs. -$3.85), Citigroup ($1.22 vs. -$1.16), and Bank of America ($0.77 vs. $0.35) are expected report significant improvements in year-over-year earnings.

Sean Ryan, VP/Associate Director for the banking and specialty finance sector at FactSet, highlighted a number of key themes and metrics to watch for banks in the S&P 500 during this earnings season:

Bank earnings season begins on Wednesday, January 15, and while trends will be mixed - NIMs, loan and deposit growth should be positives, while noninterest income and the effects of higher long rates may be negatives at most banks - 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. 

The interest rate environment was generally a positive in the fourth quarter, given the steepening of the yield curve, though the 79bps rise in the 10 year Treasury yield to 4.57%, will exacerbate OCI losses (weighing on book values), hurt mortgage banking results, and make the refinancing of maturing CRE loans more difficult.

Net interest income should benefit from the steeper yield curve, as well as healthy industry wide growth in loans (up 7.7% annualized at large domestic banks) and deposits (up 7.2% annualized at large domestic banks). 

Noninterest revenues should be mixed. Lackluster M&A volumes will continue to weigh on investment banking results, though market participants generally articulated rosy outlooks for 2025 at conferences in the fourth quarter, so it will be interesting to see the extent to which management comments remain bullish on earnings calls. Mortgage banking revenues will likely be under pressure due to the increase in rates, which drove a significant decline in mortgage applications (particularly refis), though the downward pressure will be mitigated by the impact on MSRs at lenders with large servicing portfolios. Credit card results will enjoy the seasonal fourth quarter rise in receivables and spend volume even as the recent trend of rising charge-offs seems to have moderated based on master trust data for October and November. Wealth and asset management results should see a slight tailwind from the 2.1% rise in the S&P 500 during the quarter, albeit a much smaller one than the 5.5% and 3.9% increases in the previous two quarters.

Credit concerns are likely to persist, the aforementioned moderation of card losses notwithstanding. The consumer, particularly at the less affluent end of the spectrum, remains under pressure despite low unemployment. Meanwhile, CRE risks persist, and are exacerbated by the rise in interest rates (which further constrains refinancing options).

Overall, fourth quarter bank results look to be a mixed bag, but with bank stocks at historically moderate valuations (both absolute and relative to the S&P) and healthy earnings growth expectations, the expectations bar may not be very high.

For more commentary and analysis on the banking industry, please see Sean’s articles on the FactSet Insight blog. 

Outside of the Banks industry, three of the other four industries in the sector are also expected to report double-digit earnings growth: Consumer Finance, Capital Markets, and Financial Services.

The Consumer Finance industry is expected to report the second-highest earnings growth in the sector at 35%.

The Capital Markets industry is expected to report the third-highest earnings growth in the sector at 33%. Within the Capital Markets industry, all three sub-industries are projected to report year-over-year earnings growth: Investment Banking & Brokerage (52%), Asset Management & Custody Banks (36%), and Financial Exchanges & Data (7%).

The Financial Services industry is expected to report the fourth-highest earnings growth in the sector at 12%. Within this industry, two of the three sub-industries are projected to report year-over-year earnings growth: Multi-Sector Holdings (20%) and Transaction & Payment Processing Services (10%). The Diversified Financial Services sub-industry is the only sub-industry in the Financial Services industry expected to a report a year-over-year decline in earnings (less than -1%).

On the other hand, the Insurance industry is the only industry in the Financials sector expected to report a year-over-year decline in earnings at -11%. Within the Insurance industry, three sub-industries are projected to report a year-over-year decline in earnings: Reinsurance (-111%), Multi-line Insurance (-39%), and Property & Casualty Insurance (-13%). Two sub-industries are projected to report year-over-year earnings growth: Life & Health Insurance (14%) and Insurance Brokers (13%).

Looking ahead, analysts are predicting earnings growth rates for the Financials sector of 7.5%, 3.0%, 8.4%, and 16.3% for Q1 2025 through Q4 2025.

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