The US stock earnings season kicks off on Friday, $JPMorgan (JPM.US)$Please use your Futubull account to access the feature.$Wells Fargo & Co (WFC.US)$ Two Wall Street giants were the first to report earnings showing results exceeding analysts' expectations. Analysts believe that the strong performance of major banks' earnings may indicate that the US economy has achieved a so-called "soft landing." Analysts say that during a rate-cutting cycle, under the condition of achieving a soft landing, financial stocks often perform well.

JPMorgan and Wells Fargo: Consumer spending willingness is increasing, and a soft landing may have been achieved.

JPMorgan stated on Friday that the US economy remains strong for consumers and large companies, indicating that the Federal Reserve may have achieved the widely discussed 'soft landing', namely maintaining healthy economic growth while reducing inflation.

JPMorgan's financial report shows that despite the Fed's rate cut in September, the bank's third-quarter net interest income continued to exceed expectations and raised its full-year revenue outlook. Executives stated that consumers continue to spend, and large companies are also confident, which is the economic state the Fed has always hoped for.

"These performances are consistent with a soft landing," said Chief Financial Officer Jeremy Barnum during a conference call. "This is quite consistent with this just right economic situation."

Analysts believe that the recent rate cut measures by the Fed will take time to have an impact on the banking system, with most analysts expecting a decline in bank interest income. However, JPMorgan's performance on Friday exceeded expectations.

However, the situation is not entirely optimistic. For example, deposit balances decreased, and JPMorgan stated that it expects loan losses in the credit card department to increase, indicating that financial pressure on some consumers is increasing. JPMorgan's profit decreased by 2% to $12.9 billion, but due to increased interest income, the results were better than expected. This decline is primarily due to an increase in credit card loan losses. Revenue grew by 7% to $42.6 billion.

Overall, JPMorgan's customers continue to use credit cards for spending, and users' credit card balances are increasing. Although an increase in credit card loan losses is expected, executives stated that there is not much to worry about.

"Consumer conditions are good and still maintain a relatively strong foundation," Barnum said.

Mike Santomassimo, Chief Financial Officer of Wells Fargo, also stated on Friday that consumer spending had declined slightly, low-income customers were facing difficulties, but the overall situation remained stable.

"Consumers with low income or wealth levels continue to be the most anxious and pressured group," he said.

Wells Fargo's financial report shows that the bank's profit fell by 11% to $5.11 billion in the third quarter, due to increased funding costs for customer deposits. The bank slightly lowered its full-year net interest income forecast. However, its profit still exceeded expectations.

Analysts: Rate cuts, soft landing, good performance in financial stocks

Data shows that Wall Street is waking up from the prolonged slump caused by rising interest rates, but trading volumes have not yet reached the levels of 2021 when monetary policy easing drove a peak in a year of mergers and capital market activity.

However, the outstanding performance of JPMorgan and Wells Fargo, as well as positive comments on consumer health, led to a maximum 3.4% increase in the KBW bank index, reaching the highest level since April 2022.

Wells Fargo led the index with a sharp increase of 6.9%, reaching its highest level since July. At the same time, Bank of America, JPMorgan, Zions Bank, and Western Alliance Bank all saw increases of over 3.5%. Wells Fargo, Bank of America, and JPMorgan also ranked among the top gainers in the S&P 500 index.

Apollo Global Management analyst Torsten Slok told the media on Friday that financial stocks often perform well when the Federal Reserve's rate-cutting cycle ends and achieves a soft landing. Slok analyzed the total return rates of various industries in two rate-cutting cycles that did not overlap with economic recessions, from July 1995 to January 1996 and from September 1998 to November 1998.

TD Cowen's Moshe Orenbuch stated that the performance of various banks indicates that "credit card spending remains resilient, and debt growth remains strong." He expects loan loss guidance for 2024 to be "less than initially expected, as crediting continues to normalize as expected."

In addition, KBW analyst Jade Rahmani stated that signals from JPMorgan and Wells Fargo & Co regarding the troubled Commercial Real Estate (CRE) industry confirm his view that the CRE market is close to bottoming out, with "more positive signs beginning to emerge."

The evidence cited includes both banks maintaining stable reserves for expected crediting losses, an increase in JPMorgan's CRE bank revenue, a decrease in Wells Fargo & Co's CRE net loan charge-offs (primarily in the office building sector), and growth in capital markets revenue.

Rahmani added that a stable trends in crediting may be a positive signal for Commercial Mortgage Real Estate Investment Trusts (REITs), while Wells Fargo & Co's CRE capital markets growth benefits CRE brokers.

Editor/Somer