US bank earnings – Q4 2020 look ahead

US banks lead the pack with reporting earnings for the final quarter of 2020, ones to watch between the continued 2020 earnings decline and the improved outlook into 2021.

Bank stocks had seen prices picking up momentum into end 2020 as the prospects started looking up with the vaccine breakthroughs, which also promises further resumption of economic activities down the road. The KBW Bank Index rose 34.0% in Q4 2020 while the financial sector ETF (XLF ETF) netted 22.5% gains. Ratings agencies such as Fitch had shifted their outlook for US banks to stable from negative in December, reflecting the improvement. Although, year-on-year (YoY) declines are expected to continue for Q4 2020.

Name Reporting Date Period EPS (adj.) forecast Year-on-year (YoY) change
JPMorgan Chase & Co 15/1/2021 Q4 20 2.574 -2.1%
Citigroup Inc 15/1/2021 Q4 20 1.307 -48.1%
Bank of America Corp 19/1/2021 Q4 20 0.53 -30.3%
Goldman Sachs 19/1/2021 Q4 20 6.803 -3.2%
Morgan Stanley 20/1/2021 Q4 20 1.258 -4.0%

Source: Bloomberg

Pandemic year-end performance

Looking back to Q4 2020 performance, pandemic effects linger for lenders with the continued deterioration of Covid-19 conditions particularly for the US where renewed movement restriction orders were noted across the nation. Concerns with regards to dropping-off of pandemic unemployment benefits had also been seen, altogether feeding to the slowdown in economic momentum for the nation.

That said, the US election arrived and brought away some of these worries with the ‘Democratic sweep’ situation seen to likewise usher in further fiscal support, injecting some confidence for businesses and the equity market alike. Specifically for trading activities, while October had been seen a continuation of Q3, the series of market news including the Covid-19 vaccine breakthroughs had enlivened the market in the last two months that should likewise support revenue for investment bank and trading arms of US banks alike. The caveat to note for the pandemic year-end performance would also be the treatment of bad loans for the year with write-down uncertainties present.

Improved fundamentals for 2021

The above said, the way to look is forward and the picture is not looking all that bad at all into 2021. Two key aspects altering the outlook for banks going into the new year will be 1) vaccine-driven recovery expectations and 2) yield curve steepening helping net interest margins. US 10-year treasury yields notably surged past 1.0% in the first week of 2021 as the prospects of further US fiscal stimulus lifted growth expectations.

According to FactSet’s December update, the estimated earnings decline for the S&P 500 index sits at -9.7% for Q4, though the consensus is for double digit percentage earnings growth in 2021. Banks had notably seen increased ‘buy’ ratings going their way to start the year, one to watch guidance from management to reaffirm this view.

US financials ETF: stock price technical analysis

While the S&P 500 index had charged on to fresh records, the KBW Bank Index and the Financial select sector ETF had remained conservatively behind compared to pre-pandemic levels. November’s revival for prices had however seen an uptrend established as prices moved along and took out a series of resistances for the XLF ETF. The $31.30 level however previous capped prices in February 2020 and may act as a strong resistance for prices. Breaking above the level may open up further upsides while immediate support is seen at the $29-30 zone.

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

Please see important Research Disclaimer.

Seize a share opportunity today

Go long or short on thousands of international stocks.

  • Increase your market exposure with leverage
  • Get spreads from just 0.1% on major global shares
  • Trade CFDs straight into order books with direct market access

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.


Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Monday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.