Last Friday (October 11), the banking stock index in the U.S. market set a record high for the first time in two and a half years, as pre-market trading in two Wall Street giants $JPMorgan (JPM.US)$ and $Wells Fargo & Co (WFC.US)$ announced quarterly profits that exceeded expectations, boosting people's hopes for a "soft landing" in the U.S. economy.

JPMorgan and Wells Fargo are respectively the largest and fourth largest banks in the U.S., with their quarterly performances declining compared to the same period last year: JPMorgan's net income for the third quarter decreased by 2% to $12.9 billion, Wells Fargo's third-quarter net income decreased by 11% to $5.1 billion. However, these figures are higher than analysts' previous forecasts, with analysts predicting JPMorgan and Wells Fargo's quarterly net income to be $12.1 billion and $4.5 billion, respectively.

On Friday, JPMorgan's stock price rose by 4.4%, and Wells Fargo's rose by 5.6%.

Tracking the 24 largest banks in the usa.$KBW Nasdaq Bank Index (.BKX.US)$Jumping more than 3%, driving the banking sector to break through the recent high point set in February 2023 by the collapse-triggered U.S. regional banking crisis, and reaching the highest closing level since April 2022.$SVB Financial (SIVBQ.US)$The performance of JPMorgan and Wells Fargo & Co. is proving a new sign that the Fed may already be able to deal with inflation without causing a recession, achieving the so-called soft landing.

Consumer resilience still exists.

Since 2022, the Fed has been rapidly raising interest rates to curb inflation. However, high rates inevitably make the market increasingly worried about the health of the U.S. economy, so last month the Fed lowered the benchmark rate for the first time.

The Fed has been rapidly raising interest rates to curb inflation since 2022. However, high rates have made the market increasingly concerned about the health of the U.S. economy, so last month the Fed cut the benchmark rate for the first time.

jpmorgan's Chief Financial Officer, Jeremy Barnum, said, "I think these earnings are consistent with the 'soft landing' scenario—or one could say an increasing expectation of 'no landing.'"

Barnum added that consumers have reduced their spending on travel and entertainment, but these changes "fall within the normal range and do not indicate unusually high levels of consumer stress."

Wells Fargo & Co CEO Charlie Scharf also mentioned, "We continue to look for changes in consumer health, but we have not found any. Consumer spending on credit cards and debit cards is still ongoing, although it is slowing down, it is still healthy."

Wells Fargo's Chief Financial Officer, Michael Santomassimo, further stated that the pressure brought by rising prices does not seem to have spread to other areas of the economy among low-income Americans. However, Santomassimo cautioned that the bank has not seen any economic benefits from rate cuts, and corporate borrowers remain cautious. Following a two-year tightening cycle, the bank's loan profits, namely net interest income, are expected to face pressure from the decline in U.S. interest rates.

After that, $Bank of America (BAC.US)$Please use your Futubull account to access the feature.$Citigroup (C.US)$ and $Goldman Sachs (GS.US)$ Will announce the performance on October 15. $Morgan Stanley (MS.US)$ Will release the report on the 16th.

Different opinions

After both Morgan Stanley and Wells Fargo banks released strong financial reports, there are many views in the market starting to be bullish on bank stocks.

As large banks start to release financial reports one after another, Michael Landsberg, Chief Investment Officer of Landsberg Bennett Private Wealth Management, is optimistic, "We expect the earnings season to remain strong, including large banks, as their credit card delinquency rates remain low, and increased economic activity should boost bank income."

David Lefkowitz of UBS Group Wealth Management pointed out, "Since the Fed has already begun a rate cut cycle, the economy should receive further boost from lower interest rates on credit card debt and commercial loans. Therefore, we expect third-quarter performance to remain consistent with recent healthy trends."

Torsten Slok of Apollo Global Management stated that in a rate-cut cycle ending with a "soft landing," financial stocks have always been one of the best performing sectors.

After studying the total return of each industry in the two non-overlapping rate-cut cycles from July 1995 to January 1996 and September 1998 to November 1998, Slok arrived at the above conclusion.

However, some views suggest that after two years of a tightening cycle, banks' loan profits, i.e., net interest income, are expected to come under pressure from the US rate cuts.

Last month, JPMorgan President Daniel Pinto stated that analysts' forecasts for next year's spending and net interest income are overly optimistic. He also mentioned that given rate expectations, the current net interest income estimate is "not very reasonable."

Wells Fargo & Co said in its latest financial report that net interest income for the final quarter of this year will be worse than previously expected, but it has raised its outlook for 2025.

In contrast, JPMorgan has raised its net interest income forecast for 2024 from $91 billion to around $92.5 billion, but has not provided a view for 2025.

Additionally, the market continues to watch for Warren Buffett's Berkshire Hathaway reducing its holdings of Bank of America stocks. Following the latest selling activity on Thursday, October 10th, Berkshire's stake in Bank of America has dropped to below 10%.

Warren Buffett has been selling various long-held bank stocks in the past few years, including jpmorgan, Goldman Sachs, Wells Fargo & Co and other.$U.S. Bancorp (USB.US)$.

During the crisis in the U.S. regional banking industry last year, Buffett expressed a pessimistic view, 'You have no idea how the stickiness of deposits has changed, it changed in 2008, and this event has also changed it. In this situation, we are very cautious about owning banks.'

Editor/Rocky