The big banks kicked off Q4 earnings season this morning.
As we discussed yesterday, this is expected to be the highest earnings growth quarter for the S&P 500 in three years, at 12% year-over-year (yoy) earnings growth.
If the banks are any indication, it’s going to be another quarter of big positive earnings surprises. From this morning’s reports, the average earnings growth for JPM, Wells Fargo and Citi was 48%.
The banks have been putting up big tech-like growth numbers, but trading at an average valuation of less than half the market forward P/E. And between the three (JPM, WFC and C), they have over $60 billion in loan loss reserves that they can turn into earnings at their discretion.
And the tailwinds of M&A, IPO activity and deregulation are coming.
Does this indicate a resurgence of inflationary pressures?
Two vocal Fed voters (Waller and Goolsbee) have been countering this narrative over the past two weeks.
They’ve been reminding markets that the “base effects” in PCE and lagging features within CPI are propping up the year-over-year inflation data.
What does that mean?
The headline CPI number ticked UP to 2.9% in this morning’s report.
Waller (Fed governor) has made an attempt to cool the perception of an inflation resurgence by pointing to the lagging features in the data.
Here’s what he’s talking about: Of that 290 basis points of year-over-year increase in prices (CPI) in December, 163 basis points of it was auto insurance and rent (Owners’ Equivalent Rent – OER).
It’s heavily influencing CPI.
In the case of OER (which is nearly a third of CPI), it’s old data – not reflecting the current rent climate. As you can see below, the national median asking rents (from rent.com) have been mostly declining for more than a year.