The Federal Reserve is poised to take a dovish approach and slash the benchmark federal funds rate this year as the U.S. economy slows down and inflation levels remain on track to reach the 2% target.
Market participants expect the Fed to begin slashing rates as early as March, as the federal funds futures contracts currently price in a 47% chance of a rate cut by the end of the first quarter.
The record-high interest rates and declining Treasury yields caused several banks to go under last year. However, as the U.S. economy navigates a soft landing, the lower interest rates are expected to boost borrowing activity across all market sectors.
Consequently, investors should closely watch these banking stocks in the near term.
JPMorgan Chase & Co.
JPMorgan Chase & Co. JPM is the largest banking institution in the U.S., with approximately $3.9 trillion in total assets under management as of Dec. 31. The company reported a record net income of $49.6 billion in fiscal 2023. Shares of JPM hit their record high on Jan. 5.
However, a majority of earnings can be attributed to JPMorgan's acquisition of First Republic Bank last year. Excluding synergies from the acquisition, the bank's net income in the fiscal fourth quarter fell 21% year-over-year to $9.3 billion, or $3.04 per share. Earnings per share amounted to $3.97, excluding fees incurred during the regional banking crisis and investment losses of nearly $743 million.
As the economy recovers, analysts expect JPMorgan's net revenues to rise 6.6% year-over-year to $41.92 billion in the fiscal first quarter of 2024 (ending March). Oppenheimer currently has an Overweight rating on JPMorgan stock with a price target of $232, indicating a potential upside of over 35%. Piper Sandler also has an Outperform rating on the banking giant with a stock price target of $200, indicating a potential upside of more than 17%.
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Goldman Sachs Group Inc.
Goldman Sachs Group Inc. GS, one of the leading multinational banking institutions, felt the brunt of the rate hikes in fiscal 2023, as its net revenue declined slightly year over year to $46.25 billion last year. The company's earnings per share (EPS) came in at $22.87, reflecting a nearly 24% decrease year over year. Furthermore, Goldman Sachs' net interest income fell 17% year over year to $6.4 billion in fiscal 2023.
The bank has remained optimistic regarding its growth prospects in 2024. "As we enter 2024, the potential for rate cuts in the first half of this year has renewed optimism for a soft landing. We are already seeing signs of potential resurgence in strategic activity, which is reflected in our backlog," Goldman Sachs Chairman and CEO David Solomon said.
The consensus revenue estimate of $12.94 billion in the first quarter of 2024 indicates a 5.9% increase year over year. In addition, Wall Street analysts expect the financial institution's EPS to rise at a compounded annual growth rate (CAGR) of nearly 10% over the next five years.
Citigroup Inc.
Citigroup Inc. C, one of the top five banking institutions based in the U.S., reported approximately $1.8 billion in losses in the fourth quarter ended Dec. 31) because of expenses arising from the 2023 regional banking crisis and other overseas risks. The bank's revenue of $17.44 billion for the last quarter fell short of consensus LSEG’s expectation of $18.74 billion.
Citigroup is expected to make a turnaround in 2024 as CEO Jane Fraser implements her corporate restructuring plans to boost its profit margins. To that end, Citigroup plans to lay off approximately 20,000 of its staff over the next few years. Analysts expect Citigroup's revenue to rise by 2.9% year over year to $20.56 billion in the first quarter ending March 31.
Oppenheimer & Co. Inc. has an Outperform rating on Citigroup stock with a price target of $93, reflecting a potential upside of over 76%. Wolfe Research upgraded its rating on Citigroup to Outperform on Jan. 16 and has a price target of $58, which indicates a potential upside of gnarly 10%.
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