With second-quarter results declared, bank earnings solidify a strong US economy

on Jul 15, 2021
  • The market analysis says that banks could be in for a strong earnings season.
  • Second-quarter results of big banks beat expectations. Thanks to better than expected loan losses.
  • No doubt, the U.S. economy is growing strong. However, experts question for how long?

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The U.S. economy appears to be in a comfortable position, at least based on the performance of big banks during the second quarter. Quarterly earnings from JPMorgan Chase & Co. (NYSE: JPM), Goldman Sachs (NYSE: GS), and the likes are proof of a strong economy, according to The Wall Street Journal. In fact, experts echo the sentiments that the big banks’ earnings have acted as catalysts fuelling the overall growth of the U.S. economy.

Consumers are spending money

Consumers are spending money like they once did during pre-pandemic times. From booking leisure trips to swiping their credit cards for meals at restaurants, Americans are indeed spending money. Thanks to the cash from government stimulus programs, card debt has been cleared off faster than the spending rate increased. Wells Fargo CFO Mike Santomassimo highlighted this trend and was quoted by WSJ that consumers are even starting to “act in a way” that resembles the pre-pandemic realities.

The housing market sector is performing well

Home prices have recorded an appreciation. Second homes and suburban mansions have many takers in the market. Wells Fargo & Co. and JPMorgan extended more mortgages than in the first quarter, which was already a good stretch for home lending. JPMorgan Chief Financial Officer Jeremy Barnum said:

 “We’ve seen so much home price appreciation that maybe affordability starts to be a little bit of a headwind”

The million-dollar question remains unanswered

The markets are performing better than they did before the Covid pandemic. So, while on one hand, experts are happy about the fact, on the other hand, concerns are raised, that for how long can we expect this situation to last?

“We believe that this summer represents the acid test for whether normalized trading levels will be higher than pre-pandemic,” Goldman analysts wrote before the banks reported earnings.

While this question has yet to be answered, Citigroup CEO Jane Fraser may have hinted at what we can expect. Fraser said there is a “general sense of optimism” and the bank has a “fabulous pipeline” of deals. Nevertheless, we may still be at the stage where it is too early to declare a sustainable economic outlook ahead. The CEO said:

One never wants to jinx these things