Wall Street Expects to Post Huge Q-4 Returns

Wall Street Expects to Post Huge Q-4 Returns

Wall Street Expects to Post Huge Q-4 Returns


Wall Street firms are expected to post the biggest Q-4 win since the financial crisis as the US election triggered global markets activity from government bonds to currencies.

Fixed-income and stock-trading revenue at the 5 biggest U.S investment banks rose 20% from a year earlier to $17.3-B, driven by a 32% rise in bond-trading, according to analysts’ estimates.

The rebound probably will be strongest at Morgan Stanley (NYSE:MS), the group’s smallest bond shop, with revenue projected to climb 82% to $1-B.

The question analysts have for bank executives is whether Q-4 heralds a return for bond trading, traditionally the biggest driver of Wall Street profits, or a false dawn created by Donald Trump’s victory in the US Presidential election.

Donald Trump’s election upended expectations for interest rates, economic growth and financial regulation, factors that support higher trading volumes if he realizes his economic goals.

Investors will need reason to believe further gains are possible, given that the KBW Bank Index climbed 23% since the November 8th election.

Driven by higher trading results, particularly on rates and currencies desks, banks’ total Q-4 profit is expected to rise 17% to $20.7-B.

Bank of America Corp., Wells Fargo & Co. and JPMorgan Chase & Co. are scheduled to post results on Friday. Morgan Stanley, Citigroup Inc. and Goldman Sachs Group Inc. will report next week.

The election boosted stock-trading volumes as institutional investors snatched up shares of financial firms and smaller companies.

Banks are expected to post $6.39-B in equities-trading revenue, 4% more than the previous year, driven by gains at JPMorgan and Citigroup.

The coming year could be the 1st since Y 2012 that both trading and dealmaking revenue increases. Fixed-income trading will expand as companies reprice debt and big US banks gain market share from European firms.

Investment banks’ fee-generating businesses will be boosted as mega-mergers are completed and stock sales pick up following a lull, analysts predict.

One note of caution is coming from the banks themselves.

Morgan Stanley President Colm Kelleher said he’s seen “over-exuberance” about how well trading desks were doing. While the first quarter is typically the strongest for traders, in 2016 it was unusually weak as uncertainty over global growth roiled markets.

“If you look at underlying flows, yes they’ve picked up, particularly since the election, but the overall fee pool that relates to fixed income and equities is only marginally up on the year,” Mr. Kelleher said in a TV interview last month.

Thursday, the major US stock indexes finished at: DJIA -63.28 at 19891.13, NAS Comp -16.16 at 5547.48, S&P 500 -4.88 at 2270.44

Volume: Trade on the NYSE came in at 917-M/shares exchanged.

  • Russell 2000 +0.3% YTD
  • DJIA +0.7% YTD
  • S&P 500 +1.4% YTD
  • NAS Comp +3.1% YTD
HeffX-LTN Analysis for DIA: Overall Short Intermediate Long
Bullish (0.29) Neutral (0.04) Bullish (0.29) Very Bullish (0.54)
HeffX-LTN Analysis for SPY: Overall Short Intermediate Long
Bullish (0.30) Neutral (0.21) Bullish (0.25) Bullish (0.43)
HeffX-LTN Analysis for QQQ: Overall Short Intermediate Long
Very Bullish (0.51) Bullish (0.40) Very Bullish (0.59) Very Bullish (0.53)
HeffX-LTN Analysis for VXX: Overall Short Intermediate Long
Very Bearish (-0.54) Very Bearish (-0.51) Very Bearish (-0.74) Bearish (-0.36)

Stay tuned…

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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