Proactive Investors - Friday will see the US earnings season begin in earnest with reports from Wall Street giants including Bank of America Corp (NYSE:BAC), JPMorgan Chase & Co (NYSE:NYSE:JPM), Citigroup Inc (NYSE:NYSE:C), Wells Fargo & Company (NYSE:NYSE:WFC).
Analysts expect US banks to show another quarter of negative earnings growth before returning to earnings growth in the current quarter.
Peter Garnry, head of equity strategy at Saxo Bank said: "Analysts remain muted on US banks with earnings expected to show another quarter of negative earnings growth compared to a year ago.
"The interest rate shock has been bad for banking earnings and activity levels across the investment banking division. As credit portfolios have an average maturity of around seven years banks will slowly begin rolling their assets into higher interest rate levels which will begin to accelerate their net revenue figures improving profitability over time."
If the US economy only experiences a shallow recession in real terms, then US banks "should be considered as a good tactical trade over the coming years", Garnry said.
Focusing on the wider fourth quarter earnings season, he said his team is expecting to see continued headwinds for earnings with "more industries experiencing margin compression than industries experiencing expanding margins".
Earnings in the second and third quarters have disappointed against expectations from last spring as analysts "did not see the margin compression and judging from current estimates they have not materially revised down their expectations", Garnery said, which "means that the Q4 earnings season and beyond could be paved with more disappointments".