Recession fear rife on eve of latest US banking earnings season

(Alliance News) - US banking bellwethers kick off the latest earnings season on Friday, with a backdrop of recession fears hanging over the world's largest economy.

JPMorgan Chase & Co, Citigroup Inc and Wells Fargo & Co all report first-quarter results on Friday. Asset manager BlackRock also reports. On Tuesday, Bank of America Corp, Goldman Sachs Group Inc, Johnson & Johnson and Netflix Inc post quarterly numbers.

It is an earnings season which will "give recession clues", according to deVere Group analyst Nigel Green.

"For weeks it's all about the trajectory of inflation and subsequent interest rate hikes for investors. But the focus is now shifting to earnings season. The big banks will be keenly watched as not only do they often set the mood music for the rest of the season, but also because they are more intricately linked to the rest of the economy than most other sectors. In addition, they'll be more in focus than ever following the crisis triggered by Silicon Valley Bank last month" Green said.

A poor slate of quarterly results from banking stocks could lead to fears for other sector.

Green added: "If banks are struggling, it could make it more difficult for businesses and consumers to access credit, which could in turn further slow down economic growth and lead to a recession.

"Plus, a fall in bank earnings could indicate a lack of confidence in the wider economy, which would cause investors to pull back on their investments and further exacerbate the likelihood of a forthcoming recession."

According to minutes of the Federal Open Market Committee's March 21 to 22 meeting, released on Wednesday, the fall-out from the banking crisis is likely to tip the US economy into recession later this year.

"Given their assessment of the potential economic effects of the recent banking-sector developments, the staff's projection at the time of the March meeting included a mild recession starting later this year, with a recovery over the subsequent two years," the minutes said.

Recession fears will put corporate guidance under the microscope during the reporting season.

"Last time around, there was a lot of negative guidance from corporates and I think we'll have much of the same this time too," deVere's Green predicted.

"Corporate guidance in earnings season is critical for the wider economy because it provides insight into the future expectations of companies, which will impact investor sentiment and overall economic activity."

By Eric Cunha, Alliance News news editor

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