Recently, US stock companies have successively announced their Q4 2023 performance. From the companies that have already released their financial reports, most companies, especially the banking sector, have generally seen a decline in profits, but some banks have exceeded expectations in performance. The technology sector will also release financial reports this week, and the market has high expectations for the profits of companies benefiting from the new wave of artificial intelligence development. Analysis suggests that the overall performance of the US stock market in the fourth quarter was poor, reflecting the increasing downward pressure on the economy under the background of high interest rates. The future prospects of the US economy are still not optimistic.

The overall decline in profitability in the banking industry

Among the major US banks that were the first to release their quarterly financial reports, most of them performed worse than expected and even experienced a significant decline, but there were also a few banks that achieved an upward trend in performance against the wind.

Boosted by the wealth management business, Goldman Sachs and Morgan Stanley, which announced their results last week, achieved higher than expected revenue, but their profit performance was inconsistent. In the fourth quarter of 2023, Goldman Sachs achieved a revenue of $11.32 billion, a year-on-year increase of 7%, a month on month decrease of 4%, and a net profit of $2.01 billion, a year-on-year increase of 51%; In 2023, the annual operating revenue was 46.25 billion US dollars, a year-on-year decrease of 2%, and the net profit was 8.52 billion US dollars, a year-on-year decrease of 24%. Morgan Stanley's revenue for the fourth quarter of 2023 was $12.9 billion, a year-on-year increase of 1.2%, but its net profit for the same period decreased by nearly 32% year-on-year to $1.52 billion.

Prior to this, several large banks had also released their financial reports for the fourth quarter of last year, all of which showed a decline in performance. JPMorgan Chase Bank achieved a net profit of $9.307 billion, a decrease of 29% month on month and 15% year-on-year, respectively. Bank of America achieved a net profit of $3.144 billion, with a month on month and year-on-year decrease of 59.7% and 55.92%, respectively. Citigroup suffered a net loss of $1.839 billion, compared to a net profit of $3.546 billion in the previous quarter and $2.513 billion in the fourth quarter of 2022, respectively. Wells Fargo Bank achieved a net profit of $3.446 billion in the quarter, a decrease of 40% compared to the previous quarter and a year-on-year increase of 9%. The operating revenue of the four banks declined month on month for the current quarter.

An analysis suggests that the deteriorating profitability of major banks in the United States is mainly due to factors such as regional banking crises leading to deposit insurance institutions charging additional fees and increased credit losses. To make up for the huge amount of funds spent during last year's banking crisis, the Federal Reserve Insurance Company charged a total of approximately $8.6 billion in special fees to banks such as JPMorgan Chase in the fourth quarter of last year, which had a significant impact on the profitability of the relevant banks.

Goldman Sachs banking analyst Richard Ramsden said that looking ahead, the decline in net interest income in the fourth quarter of the banking industry may continue into the first half of this year, as banks tighten their lending standards and low-income consumers face increasingly tight financial conditions. But as interest rates decline, the opposite impact may occur in the second half of this year.

In addition, Reuters cited analyst comments suggesting that the banking industry is expected to save costs this year and remain cautious when repurchasing their own stocks, as they are prepared to meet stricter regulatory rules, namely higher capital requirements, as part of the new Basel Accord regulations proposed by US banking regulators.

Technology company performance receives attention

Following major banks and financial institutions, the US technology sector will begin releasing financial reports this week. Large technology companies, including Tesla and Intel, will release their Q4 2023 results later this week.

The Guardian reported that some analysts predict that the financial reports of large US technology companies will be relatively strong, which may indicate that the technology industry has overcome the problems caused by excessive recruitment during the pandemic and has restructured around cloud computing and artificial intelligence. Analysts who understand the cutting-edge development of artificial intelligence believe that we are currently at the beginning of a "technology bull market". Many people believe that technology companies benefiting from the new wave of artificial intelligence may bring surprises to the market.

But there are also analyses that warn that the current situation is not optimistic. According to reports, according to statistics from Bank of America, as of the end of 2023, the overall expected P/E ratio of the US technology sector was 27 times, ranking second among all S&P 500 index sectors, only behind the real estate sector (39 times). The overall P/E ratio of the S&P 500 index is 19.8 times.

FactSet analyst John Barthes pointed out in a recent report that the negative expectations of S&P 500 component companies for the fourth quarter of last year were slightly higher than the average levels of the past five and ten years, and 111 component companies issued warnings about upcoming performance. Among them, 25 technology companies have issued warnings that their profit data for the fourth quarter of last year will be lower than expected.

John Lynch, Chief Investment Officer of Comerica Wealth Management in the United States, stated that the market is more concerned about the company's ability to meet or exceed profit expectations. As long as profits in the coming weeks meet expectations, the new record level of the S&P 500 index is sustainable. Because if the economy is stable, companies can achieve profitability. But if the market's profit expectations are ahead of expectations, or if some companies do not perform in line with optimism, it may bring real risks.

Economic downturn pressure still exists

Regarding the inconsistent performance of the US stock market in the fourth quarter of 2023, analysts pointed out that this indicates that the US economy is facing many uncertainties and downward risks, and hidden concerns that reflect the real economic situation may gradually emerge.

Gene Boyven, director of BlackRock Investment Research, believes that the fourth quarter 2023 financial report should provide more insight into how growth expectations will evolve. Due to the pressure of rising interest rates, sustained wage increases, and a decrease in inflation rates but still above target, profit margins will continue to normalize over time.

According to data from the US Department of Labor, the Consumer Price Index (CPI) rose 0.3% month on month in December 2023, an increase of 0.2 percentage points from November last year, higher than market expectations.

Analysts believe that the December inflation data indicates that the path for the Federal Reserve to combat high inflation is not smooth, and the progress in curbing inflation is still slow. It is unlikely that the US inflation level will plummet to 2% in a straight line. The high cost of living may suppress the pace of the Federal Reserve's interest rate cuts.

Bank of America analyst Ibrahim Punawara said that there is a lot of macroeconomic uncertainty now, making it difficult to predict the trajectory of net interest income. He believes that the debate over the potential rate of interest rate cuts by the Federal Reserve this year is one of the key issues plaguing the market.

The National Economic Situation Survey report released by the Federal Reserve on January 17th shows that since the end of November 2023, there has been almost no change in US economic activity, and the overall employment level has not changed much. The report believes that overall weak demand, sluggish commercial real estate market, and the US presidential election will bring uncertainty to economic growth.