“If you believe, as I do, that interest rates have peaked and our economy is almost certain to have a soft landing — thank you (Fed Chairman) Jay Powell — then banks should be worth owning now,” he said. “But let’s see what happens when the four major financial centers report on Friday.”
Cramer listed JPMorgan as one of the companies that remains very popular on Wall Street, betting that its shares “could rise” over time, but may not be this year’s top pick. He said Bank of America and Citigroup need a few positive quarters to gain investor confidence, with the latter in particular needing to prove its comeback story after it announced major restructuring efforts in September.
Cramer said he’s very excited about Wells Fargo’s prospects, even though the stock recently saw two analyst downgrades. He said the company’s new management was committed to cutting costs and improving technology and suggested a buyout opportunity could be forthcoming.
According to Cramer, investors should pay particular attention to net interest income and net interest margin, which measure what banks earn from borrowing deposits and then lending that money at higher interest rates. This data can indicate the performance of the bank’s core business.
Investors should also follow comments closely, especially regarding the credit status of consumers and businesses, Cramer said. Bank stocks could fall if credit quality proves poor, but strong credit could lead to higher earnings estimates for the rest of the year. As a major issuer of credit cards, these devices may also provide insight into consumer spending habits.
Finally, Cramer advised monitoring the investment banking operations of financial institutions. He said there was optimism on Wall Street about the sector’s comeback this year, driven by a buoyant IPO market and more bond issuance.
“We’ve also seen a rise in mergers and acquisitions, which is great for investment bankers — the advisory fees they get on these deals are enormous,” he said. “The return of investment banking could allow the financial sector to give us some excellent performance this year.”
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Disclaimer The CNBC Investing Club Charitable Trust owns shares of Wells Fargo.