Many analysts expect US banks to outperform other sectors of the economy in the upcoming earnings season in a quarter where the majority of the companies in the S&P 500 are expected to miss consensus estimates as the American economy slows down.
Senior analysts at Wells Fargo and Oppenheimer have issued research notes indicating that they expect the financial sector to outperform the entire index mainly because they are trading at a significant discount to their historical averages.
The US financial sector has been on a share buyback spree, significantly reducing the number of shares outstanding and automatically raising the earnings per share given the lower number of available shares.
The analysts are also counting on future Fed rate cuts to boost the overall performance of most US banks given that lower rates usually trigger a flood of mortgage refinancing applications as borrowers seek to capitalise on the lower interest rates.
However, Fed rate cuts are likely to have a negative impact on bank earnings in 2020 given that the lower rates will force them to lower interest rates on their loans, which will affect their overall interest income.