As Wall Street anticipates earnings reports for 2025, Bank of America is keenly observing how performance will align with optimism following President-elect Donald Trump’s win in November. Below are key factors influencing the upcoming earnings session.

The Post-Election Surge and Shifts in Market Sentiment

• Initial Surge:
  After Trump’s electoral victory, the market saw an upswing driven by expectations of pro-business policies, including tax reductions and deregulation.

• Current Evolution:
  However, recent pressures from elevated U.S. Treasury yields and the Fed’s cautious stance on rate cuts have created uncertainty.

  • Federal Reserve Tractability:
    Despite reducing rates by a full percentage point in 2024, inflationary risks from Trump’s policies indicate a careful approach from the Fed.

• Market Movements:

  • Dow Jones Index: Down by 0.7% since November 5.
  • Russell 2000 Index: Dropped into correction territory, down by 10% from its late November peak.

Focus on Upcoming Earnings Reports

Attention centers on forthcoming quarterly earnings from significant Wall Street banks, testing the underlying market sentiment:

• JPMorgan
• Wells Fargo
• Citigroup
• Goldman Sachs
  • These reports could prove to be critical in assessing if the market’s post-election optimism can sustain.

Key Analytics:

1. Net Interest Income (NII):
   Net interest income will be scrutinized closely, reflecting banks’ earnings from loans versus what they pay on deposits, which ties directly to interest rate decisions.

2. Deal Activity Volumes:
   Healthy levels of deal volumes could drive earnings, especially in investment banking, benefitting from mergers and acquisitions activity. Insight into merger data can predict ongoing earnings trends.

3. Inflation Outcomes:
   Market participants will also pay close attention to how job reports and inflation data will influence banks’ earnings forecasts amidst high bond yields.

Understanding Economic Indicators

Alongside earnings results, economic indicators such as current U.S. inflation levels could further sway market sentiment. Shifts in interest rate expectations could also be pivotal for both equity and bond markets in the short term.

Conclusion

The upcoming earnings season will serve as a benchmark for the sustainability of Trump-induced market rally, particularly in the context of Wall Street bank results. While favorable deal volumes might fuel growth, minimal focus will rest on net interest income and inflation concerns impacting earnings. These earnings weeks will prove crucial in determining market dynamics heading into 2025.