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Rising stock market sets high bar for earnings season

Yshoo Finance's Jared Blikre joined Yahoo Finance Live to break down what to expect from Wall Street's upcoming earnings season.

Video transcript

ADAM SHAPIRO: Let's move ahead. We want to get back to Jared Blikre, because there's a great many things that want to keep an eye on this week. Not only the big banks, not only April 14 and the Titanic, I guess the movie is still in my mind, but also Coinbase, the IPO this week. What do you want to start with, the banks?

JARED BLIKRE: Well, you know, April 15 isn't Tax Day, so we're not even going to touch that. We talked about the Coinbase IPO after the bell today. And I'll just reiterate that we got Bitcoin knocking on record highs right now, could be a lot of enthusiasm for that, which I think it's going to be a buy the news event.

But if it's a sell the news event, watch out, because the market has been consolidating at highs, but when we have a big catalyst, could go either way. So we'll be prepared for that eventuality. Biggest thing this week is earnings. Big bank earnings out Wednesday. We got Wells Fargo, Goldman Sachs, and the Kahuna, JP Morgan.

I have on the Wi-Fi Interactive heat map, this is year-to-date returns. And they are substantial for this base. We all know we've been talking about the reflation trade and how the extending yield curve allows banks to make more money. There's going to be some focus on loan loss reserves and basically freeing those up.

So banks were overly conservative, planning on a worse than feared pandemic, and now it's better than feared, and they to release all the money that they've been saving up in case people defaulted on their loans, which they're not doing to a high degree. In fact, the loan loss rates are pretty low by historical comparisons, which is really amazing given the current setup here.

But I do have some notes from Bloomberg on JP Morgan and Goldman Sachs, their earnings previews. So for JP Morgan, let's pull up that stock right now. You could see it's up 22% for the year. I'll pull up the year-to-date as well, up 51%. Revenue is expected to rise 4% in the first quarter from the prior year.

Earnings per share, that's expected to go up because of the provision [INAUDIBLE] first quarter 2020. What does that mean? It means that they're going to be able to release those loan reserves and those provisions for them. The reserve, at least for JP Morgan, could be 700 million versus 2.9 billion in the fourth quarter. That's a huge differential.

And then it gets into net interest margin. That basically is the spread between what the bank can borrow at, for instance, the Federal Reserve, and what it can lend at. People with mortgages to houses. So that goes up, banks become more profitable. That metric is expected to be 1.8%. Net interest income expected to be flat versus the fourth quarter to down 8% versus the first quarter.

Now, in trading, and we know that there's been a lot of activity in the first quarter, banks make money when they trade both equities and bonds. It was a pretty strong first quarter, tough March comparisons in particular, you go back one year ago. And equities are expected to return better results than FIT, which is fixed income or also called bonds.

Now, investment banking fees, they're going to be up over 30%. And on the call, I think it's going to be pretty interesting to listen to the various questions about Archegos. Most of these Wall Street banks had at least some exposure, Goldman Sachs and Morgan Stanley, really the two US banks with the most.

And speaking of Goldman Sachs, let's get to them as well because revenue is expected, for them, to jump 40% in the first quarter as compared to JP Morgan's 4%. EPS expected to be up. That's earnings per share because the same reason, releasing those loan reserve. FIT trading, bond trading may be about flat. Equities trading expected to be up 11%.

Banking fees, because there's been so much M&A activity and also equity capital markets, which is people raising money through IPOs, adding on additional offerings. Banking fees are expected to be up 54%. Equity capital markets, nearly three times as much as the year prior. M&A, 22%, and debt capital mark-- excuse me, debt capital markets, 6%.

And we'll just take a look at Goldman Sachs here, that's up 25% for the year-to-date. Over the trailing year, up 80%. And both JP Morgan and Goldman have had record highs relatively recently.

SEANA SMITH: Jared, real quick on the CPI data, because we had the yield inching a bit higher today. Of course, the bond market closely watching tomorrow's CPI data. What is the Street expecting?

JARED BLIKRE: Yeah, CPI is expected to come in at 2.5%, that's a headline number. When you take out food and energy, that is expected to be 2/10 of a percent for the month. And for a year-over-year basis, 1.5%, still quite short of the Fed's target of 2%.

I'd also add that they really follow PCE inflation as opposed to CPI. PCE is even lower, has been trending lower than CPI. So that's going to be a big focus tomorrow morning, and then retail sales on Wednesday, I believe. Yes, I'm looking at that actually two days from now, so Wednesday.