Post-election market optimism has evaporated as longer maturity Treasuries search for support following the December payroll reports and futures markets not expecting another Fed rate cut until May. Fed H.8 data shows solid bank industry trends in the 4th quarter.
The BLS December Employment Situation Summary (January 10) reported solid net job gains in both of their surveys. The headline Establishment survey found 256k new jobs added in December. Prior months revisions totaled -8k. The usual categories of Health Care, Government and Hospitality led the gains. Retail trade reversed the losses found in November.
The Household survey also reported good labor news with strong monthly gains in the employment level and a reduction in the unemployment level back below 7 million. The net difference in jobs added since 2021 between the 2 reports is 5.35 million.
The healthy December jobs numbers drove further sell-off in the Treasury market as longer maturity yields surged to rates last seen in October 2023. While the broader equity markets declined, bank stocks sold off more aggressively. Nearby I present a long term chart for the Nasdaq BANK Index. I highlight what I view as 3 key price levels from the past decade.
In my opinion, BANK 4200 is a key resistance level. When the index broke above here in November, I anticipated a later test for new support. Higher Treasury yields and less expectation for further monetary easing helped to pop the immediate post-election optimism. Index returns over the past 60 days show the broader market is essentially flat with bank stocks lower, especially when compared from the November 6 open. The question now before investors is whether bank equity markets will be able to hold the BANK 4200 support level?
Key for me is how the 2025 earnings outlook develops out of the upcoming results reporting period. When I examine the 4th quarter bank industry trends, I see generally solid data. Industry loan growth equating to more than 6% annualized should generally exceed consensus models. Within the loan categories, Consumer balances led by Credit Cards grew most quickly while Commercial Real Estate contracted slightly.
The industry deposit story in the 4th quarter looks equally positive. Deposit growth exceeded loan growth with less reliance on large time deposits. Review of Small Bank deposits shows similar trends with the mix of large time deposits to total deposits falling to 13.5% from 13.9% in September. With consensus earnings estimates little changed across the mid-cap bank group since early October, I think we could get results and guidance over the next few weeks which move the full year 2025 expectations for the group higher.