Wall Street Anticipates Economic Boom With Soaring Profits – 04/15/2021 – Market

The mood on Wall Street is clearly one of enthusiasm.

A year ago, when the coronavirus swept across the United States, the nation’s largest banks predicted economic devastation. They have set aside billions of dollars to protect themselves against the immense losses that could arise, with record job losses, empty office buildings and the closure of scores of small businesses.

The story is completely different today. On Wednesday (14), the executives of Goldman Sachs, JPMorgan Chase and Wells Fargo made optimistic economic projections. They said consumers – whose wallets were growing with money received from stimulus programs – were eager to spend and businesses were rushing to expand or acquire new businesses now that the United States was exiting. of the Covid pandemic. -19.

“It is clear to me that the United States is set to experience a strong recovery this year, driven by consumption returning to pre-Covid levels,” David Solomon, managing director of Goldman Sachs, told analysts, during a telephone conversation. “This sentiment was reflected in the financial markets.”

Jamie Dimon, chief executive of JPMorgan Chase, America’s largest bank by assets, expressed a similar position.

“We believe the economy has the potential to experience extremely robust growth for several years,” Dimon said in a statement.

He attributed the prospect to government spending on stimulus and infrastructure, the positive policies of the Fed, the US central bank, and strong hopes that the pandemic is coming to an end.

All of this bodes well for the banks, which began reporting their quarterly results this week.

On Wednesday, Goldman Sachs and JPMorgan Chase reported profits roughly five times those recorded in the first quarter of 2020, thanks to the combination of good business results and the reduction in the amounts they held in reserve to cover possible losses on ready.

Wells Fargo reported profits 700% higher than in period 2020.

Mike Novogratz, a seasoned trader who runs a financial firm specializing in cryptocurrencies, called the bank’s results a “testament” to what happens when there is so much money available to invest “as there is. now have in the system ”.

He predicted an imminent recovery in travel, entertainment, social life and investment, and said the situation created would resemble that of the great development the United States experienced in the 1920s.

He said investors should thank Fed Chairman Jerome Powell for taking steps to support the economy, such as acquiring financial assets, and for keeping interest rates low.

There are enough signs of caution to temper Wall Street’s optimism. The number of contagions and hospitalizations continues to increase in parts of the country, while the vaccination campaign is gaining momentum.

The recent decision to suspend use of the single-dose vaccine supplied by Johnson & Johnson – one of three vaccines approved for use in the United States – and the reluctance of a quarter of Americans to be vaccinated could slow progress of the country in herd immunity from management. And trends that benefit big banks have yet to reach joint ventures, many of which continue to struggle.

In addition, the recovery is likely to have imbalances, and people who were already struggling before the pandemic will suffer more than those who have kept stable jobs.

But for the banks that announced results on Wednesday, the indications tend to point clearly in the direction of improvement.

Bank results in the last quarter reveal “a dramatic shift from an unprecedented decline in growth compared to Covid-19 to a dramatic rise in V compared to what is happening in the economy at large” said Stephen Scherr, vice president financial president of Goldman Sachs.

Expectations about this recovery were reflected in the decisions of the three banks to reduce the reserves that we held at the start of the pandemic to deal with continued losses in mortgages and loans, and in credit card payments.

JPMorgan cleared $ 5.2 billion from its credit reserve and Wells Fargo reduced its $ 1.6 billion.

Wells Fargo also pointed out that loans officially recorded as losses were at a record low. Goldman Sachs, which has much smaller transactions with consumers, also cut its reserves by about $ 200 million.

Strong investment in bank lending and market operations added to the euphoria.

All three announced robust revenues in a variety of industries, driven by a combination of active and bullish markets, a wave of new business in the mortgage segment, and a boom in Special Purpose Acquisition Companies (SPAC ). M&A activity in the corporate sector was also characterized by record value.

Goldman Sachs – the dominant bank in business and market advice – said its revenue doubled from $ 8.7 billion to $ 17.7 billion, thanks to double-digit growth in benefits of its investments, management and operations, assets and markets.

JPMorgan Chase announced a 14% increase in revenue, from $ 29 billion to $ 33 billion, driven by both the markets and its investment bank.

Wells Fargo increased revenue by 2%, helped in part by a 19% increase in home loans, now that many Americans have chosen to move out of city centers and live in the suburbs or rural areas. The results “reflect the improvement in the US economy,” but low interest rates and weak demand for loans were “unfavorable factors,” said Charles Scharf, chief executive of the bank.

Banks have been the main beneficiaries – albeit unintentionally – of government spending over the past 12 months to dampen the shock of closures caused by the virus in the economy and keep it from plummeting.

A little over a year ago, the Fed lowered interest rates to near zero and relaunched its bond buying programs. In practice, it injected billions of dollars in new money into financial markets, which helped boost activity in the mortgage lending, corporate bond, and mergers and acquisitions segments.

Since then, the stock markets have risen by more than 80% amid the boom in transactions that peaked this year. Both of these factors have helped banks, which operate units that sell and buy stocks on behalf of clients.

Goldman Sachs stock trades reported first quarter revenue of $ 3.7 billion, up 68% from a year ago. JPMorgan’s operations on the exchanges generated revenues of US $ 3.3 billion, up 47% from the period of 2020.

Looking ahead, several banks have pointed to the impact of recent stimulus packages’ cash injections on consumer accounts – a component of the nearly $ 5 trillion the U.S. federal government has spent on combating. the crisis over the past 12 months.

The influx of federal dollars has helped tighten the finances of the United States for several years, said financiers, who added that they had seen more and more indications that consumers were eager to use this. silver.

“We are seeing an increase in consumer spending on travel and food, two particularly narrow categories since the inception of Covid-19,” Wells Fargo’s Scharf said in conversation with analysts, noting that in the week is ending April 2, travel expenses paid with debit cards were up 422% from the same period in 2020.

JPMorgan Chase also reported strong growth in travel and entertainment spending, which rose 50% in March compared to February.

“There is no doubt that there is strong pent-up demand among consumers,” Solomon of Goldman Sachs said in conversation with analysts.

Yet many of the small businesses that have been kept afloat thanks to federal aid – which has distributed roughly $ 1 trillion in the past 12 months, largely through loans whose payments must be canceled – do not yet share that wealth., And the government’s main support for small businesses, the Payroll Protection Program, is coming to an end.

About 13% of small business owners polled by the U.S. National Federation of Independent Businesses last month said they should shut down for good if conditions don’t improve over the next six months.

“The global recovery continues to show imbalances in the sectors that concentrate small businesses,” said Holly Wade, executive director of the federation’s research center.

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