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"Early signs" of easing cycle working through corporate earnings - BofA

Published 10/14/2024, 08:01 AM
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Investing.com -- The first batch of latest quarterly earnings from S&P 500 companies last week are early indications of an impact from an anticipated easing cycle in interest rates, according to analysts at Bank of America.

Roughly 30 firms in the benchmark index have already reported, with reported earnings per share topping consensus expectations by 5%, ahead of a 3% beat at this time last quarter.

Wall Street banks, led by JPMorgan Chase (NYSE:JPM) and Wells Fargo, led the better-than-anticipated results, according to the BofA analysts.

In a note to clients on Monday, the analysts said that the lenders are seeing signs that a lower rate environment has bolstered their fee-related businesses. Underwriting fees in particular soared during the quarter, as companies looked to take advantage of a drawdown in interest rates.

The Federal Reserve slashed rates by an outsized 50-basis points last month, and markets are now pricing in further borrowing costs reductions at the central bank's final two meetings in 2024.

"The recent pickup in mortgage applications and refi[nancing] activity also point to easing rate pressure working through the most rate-sensitive parts of the economy," the BofA analysts added.

However, the prospect of slipping rates is seen tempering net interest income (NII), or the difference between what a bank makes from loans and pays for deposits. NII is anticipated to slump in the first half of next year, the BofA analysts said.

Apart from financial groups, industrial supplies maker Fastenal (NASDAQ:FAST) posted third-quarter profit that was just above estimates thanks to solid demand for its safety offerings.

The nuts and bolts manufacturer also increased inventory for the first time since the first quarter of 2023 and is seen adding more in the current three month period, which the BofA analysts suggests could mean headwinds from de-stocking pressures are cooling.

"We believe easing rate pressure, combined with moderating headwinds from destocking, should translate into a pickup in manufacturing activity as we move into 2025, driving top-line growth, operating leverage and higher margins," the analysts said.

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