Wall Street’s big banks will set the tone for the Dow Jones over the next week with earnings for the second quarter.
US30: Weekly Chart
The US30 has found resistance at the 34,400 level and will need strong earnings to continue the bullish trend.
Analysts do not have high expectations for bank earnings. They are still watching regional banks after this year’s turmoil and the collapse of SVB.
“The mid-sized banks and, still, the regional banks are going to have issues. We’re going to hear more about tightening lending. And with tightening lending, it’s not good for the business owner, which is the backbone of our economy. I think it’s going to be more of the same narrative as we think about things going forward,” one CIO told Yahoo Finance.
Commercial real estate could be another problem for banks, as there have been some defaults. Banks were open about risks in the sector in their first-quarter reports.
Commercial real estate accounts for the biggest banks for around 10% of their loan book. Retail and office space, where the pressure has been seen, tend to be 3% to 4%. It can be double that at the regional bank level, so investors will be more concerned about smaller banks.
Stricter capital requirements following the regional banking problems are another problem area.
“It’ll still favour the large banks, the JPMorgans, Bank of Americas, even Morgan Stanley, and some of the super regionals, I would say, like Truist Financial, PNC Financial, and US Bancorp. These are banks that have already largely met or can more easily meet the higher capital requirements. It will take them a matter of quarters, let’s say, no more than two years to reach these higher capital levels that are most likely to be in place,” said Stephen Biggar of Argus Research.
This will be an essential end to the week, as the first wave of bank earnings will determine if the Dow can start on a bullish note next week.
