One of the year’s hottest interchanges may get a boost from earnings season.
RBC Capital Markets’ Gerard Cassidy expects financials to exceed Wall Avenue expectations when they start reporting this week.
“The big beats are likely to come from the loan trouncing debits reserve releasing numbers,” the firm’s head of U.S. bank equity strategy told CNBC’s “Trading Nation” on Friday. “Wear year because of the pandemic, the banking industry set aside billions of dollars in anticipated credit losses, and the reserves for these ruins weren’t used.”
Financials were the third worst performing S&P 500 group in 2020, behind energy and authentic estate. So far this year, Financial Select Sector SPDR Fund, which tracks the group, is up more than 19%.
According to Cassidy, that’s close by to change. He believes the banking sector will be among the best performers this year due to the unprecedented economic rally.
“That was not factored in last year when the banks set aside this money to cover these losses,” he said. “So, we look forward in the first quarter that’s going to be the big driver of the earnings beat, partially offset though with slower improvement in the net interest income and maybe some net interest margin pressure as well.”
JPMorgan Chase ushers in earnings time on Wednesday — along with Goldman Sachs and Wells Fargo.
Cassidy anticipates Bank of America, which discharges quarterly results on Thursday, will be the biggest winner. It’s up 32% so far this year.
He lists strong management, its major exposure to the U.S. recovery and diverse revenue stream as the chief bullish factors.
“Ninety percent of their business, produces from the United States,” said Cassidy. “With the Federal Reserve forecasting the growth of this country’s frugality coming in at 6%, they will be one of the biggest beneficiaries of that growth.”
Cassidy names Credit Suisse as the bank faade the most challenges right now. He cites its massive losses in connection with the Archegos Capital hedge fund implosion.
“There has been a figure of management changes over the years in that organization,” Cassidy said. “Because of that possibly the controls and pick up where one left off result froms weren’t as solid as they’ve been at some of the domestic U.S. firms.”
Shares of Credit Suisse are off more than 26% since Trek 1.
Disclosure: RBC Capital Markets has investment banking relationships and/or non-investment banking relationships with JPM, BAC MS, GS, and CS.
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