$BAC drag down US market or vice versa? Read & decide.
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Like JPMorgan, $Bank of America(BAC)$ will also be reporting its Q4 2023 earnings on Fri, 12 Jan 2024 in the morning, before US trading begins.
From all the forecasts that I have combed through and will be summarizing below, it is not a pretty sight.
Recap: Q3 2023 earnings.
Let’s take a look at BofA third quarter earnings before diving into Q4 2023 estimates. (see below)
Very quickly, most of BofA metrics have exceeded YoY results.
There were 2 metrics namely - Operating income and Net change in cash that have fallen short of YoY performance.
BofA Q4 2023 earnings: Wall Street estimates.
(Data courtesy of Factset):
Revenue: $23.87 Billion vs $23.44 (YoY). This represents +1.83% gain YoY.
Earnings per share (EPS): $0.60 per share vs $0.85 (YoY). This is a -29.41% decline YoY.
Net Interest Income (NII): $13.97 Billion vs $14.7 Billion (YoY). This is a -4.97% decline YoY.
Major factor that impede BofA’s growth.
The single biggest factor affecting BofA's "growth" was its decision to invest billions of dollars in two assets: (a) long-dated U.S. Treasuries and (b) mortgage bonds, during the pandemic.
This strategy was fueled by two key factors: a surge in deposits during the pandemic and the prevailing near-zero interest rate environment, which limited alternative investment options.
When the Fed began to hike the Fed Funds rate (from March 2022 onwards), BofA’s investment in long terms Treasuries and mortgage bonds became a “disinvestment” and began to weigh down on both its NII and NIM.
The other factors would be (1) the lack of loan demand, (2) lack of M&A activity and (3) almost non-existent IPO business is hurting the more profitable activities of BofA; in addition to paying out 5% to money market depositors
What happens are Q4 results are out?
Following are my viewpoints (mine & mine only).
(1) Overall US market sentiments.
Prior to BofA’s earnings announcement, we need to understand that the US market is still harbouring a “negative” sentiments.
This was due to a larger-than-life of +0.3% increase to US’s December 2023 Consumer Price Index (CPI).
Data came in at 3.4% YoY, (a) exceeding Wall Street 3.2% estimates and (b) November 2023 CPI of 3.1%.
Market is concerned how the Fed will react to the data, given that the FOMC team is set to convene on Jan 30-31 2024.
(2) US pre-market indicators.
US pre-market indicators are exhibiting mixed sentiments, with the Nasdaq set to consolidate further.
This is but a prelude of what’s to come once trading resumes with many factors driving and affecting market sentiments.
The banks’ earnings result will be one such catalysts of course.
(3) Potential scenarios how BofA behaves on Friday.
A. Downward Price Pressure:
Confirmation of Negative Estimates: If the actual earnings come in significantly below estimates, particularly on key metrics like EPS and Revenue, it could trigger sell-off pressure on Bank of America due to investor disappointment.
Market Pessimism: A negative earnings report might amplify pessimism in the wider US market, potentially leading to broader market declines beyond just Bank of America.
B. Limited Reaction:
Partial Beat: If Bank of America slightly exceeds some estimates while still missing others, the market reaction might be muted, with the stock price experiencing minimal fluctuations.
Focus on Other Factors: Macroeconomic news, other major earnings releases, or geopolitical events could overshadow Bank of America's earnings, leading to a neutral market response.
C. Short-Term Upward Surge:
Surprise Beat: If BofA significantly surpasses both analyst estimates and market expectations, it could trigger a short-term buying, driving the stock price up momentarily.
Positive Sentiment Change: A strong earnings report might improve investor sentiment towards the financial sector, potentially leading to broader market gains.
Could now be the time to pick up Mr Warren Buffett’s favourite bank stock at a steal ?
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Do you think BofA will hand in a stellar report card like JPMorgan?
Do you think US market will close on a “high” this Friday?
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