The financial sector is expected to report strong earnings for Q1 2025, driven by growth in large and small banks, a resilient US economy, and catalysts like the potential FOMC lawsuit and Fed stress test changes.
The calendar Q1 2025 earnings reporting cycle is gearing up, with reports from CQ4 coming from nearly 100% of the financials, which are anticipated to be strong. This quarter's financials are more crucial than ever as the sector is expected to lead growth with over 40%, and estimates are on the rise. Large banks are all projected to post high-single-digit to low-double-digit gains, while smaller companies are expected to grow even faster.
Moreover, the sector is likely to strengthen its collective balance sheet, increase its capital position, and remain on track for robust capital returns in 2025. JPMorgan, the largest bank outside of China globally, is anticipated to report leverage gains on the bottom line. The consensus forecast for adjusted earnings is $3.89, representing over 28% higher than last year. Outperformance is possible due to earnings trends, consumer strength, increased credit use, steady business spending, and higher interest rates. Guidance will also be significant. Analysts have set a low bar for 2025, including top and bottom-line contraction that seems unlikely given the outlook. The U.S. economy remains resilient, projected for above 3% growth in Q4 2024 and at least 2% growth in 2025, a conservative estimate. Large banks have a catalyst in the works as they are set to sue the FOMC over Basel III endgame and capital requirements, already prompting action. The Fed plans to modify the stress test to reduce result volatility and improve transparency, beneficial for bank stocks and the broader market. Forecasts for Q4 and 2025 have dipped from earlier highs but remain strong and align with an outlook for higher index prices for the S&P 500. The forecast for Q4 shows a sequential and year-over-year acceleration to 12%, and the final tally is likely to be even higher. The index typically outperforms the consensus at the beginning of the season by at least 300 basis points and often up to 1000 or more
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