Can US bank stocks keep rallying ahead of Q1 earnings?

After a great six months for the stock prices of the big six banks, is there room for further upside?

US banks are in a very different position to a year ago, and their stock prices reflect this. The last 12 months have seen a dramatic change in fortunes, and now banks and their investors can look forward to an expanding economy.

What to look for in bank earnings

Earnings are expected to rebound, but the question for the sector is going to be whether the figures will be strong enough to justify further appreciation in their stock prices, at least in the short term. The current bull case for bank stocks depends on the following factors:

Rising earnings – a busier economy should drive more lending activity by consumers and companies. This will boost activity for banks, driving up revenues and profits.

Ebullient outlook – generally banks expect the economy to grow further in the second half of the year, an expectation bolstered by the rebound in US job creation.

Reserves – some of the huge reserves kept back last year in expectation of greater losses will be released, bolstering earnings in this and subsequent quarters.

All this is dependent on the economy continuing to grow, and no further lockdowns. Given the strength of the US vaccine programme, and the continued stimulus efforts of the US government, those assumptions seem fairly secure.

JPMorgan Chase stock price (earnings 14 April) – technical analysis

JPMorgan Chase stock continues to rally, and has returned to the $155 area that has marked resistance since early February. This two-month consolidation seems likely to resolve to the upside, opening the way to fresh record highs.

Goldman Sachs stock price (earnings 14 April ) – technical analysis

The uptrend is still in place for Goldman Sachs, having found support since late February around $322. No sign of any price movement below this level has been seen as yet, and the current recovery, plus a rise in daily stochastics, points to a move back towards $350 and higher.

Wells Fargo stock price (earnings 14 April) – technical analysis

Wells Fargo's uptrend is firmly intact, having recovered from the dip to the 50-day simple moving average (SMA), blue line, in late January/early February. Since then it has pushed on to new one-year highs, although unlike others in the sector it has yet to reclaim its 2020 highs. Nonetheless a move above $42 seems likely in due course, with the buyers having recovered control in late March after a brief dip to $38.

Bank of America stock price (earnings 15 April) – technical analysis

Like the others, Bank of America stock recovered strongly from the dip in January, bouncing from the 50-day SMA to hit a new record high in early April. Some late-March weakness has been shrugged off, and overall the uptrend has been fortified by the higher highs of early April.

Citigroup stock price (earnings 15 April) – technical analysis

Citigroup shares have failed to recover their March highs but remain solidly above the 50-day SMA at $68.75. As a result, the current consolidation seems set to resolve in a move higher in due course, with buyers coming in last week to support the lows near $71.00.

Morgan Stanley stock price (earnings 16 April) – technical analysis

Morgan Stanley stock has broken out from a triangle formation, clearing some trendline resistance from the March peak and seeing a revival above the 50-day SMA at $77.97 and above trendline support from the October low. With stochastics and moving average convergence/divergence (MACD) turning higher the way looks clear for a move back to the March highs.

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