Please ensure Javascript is enabled for purposes of website accessibility

Why Tomorrow Will Be a Day of Reckoning for the Stock Market

By Dan Caplinger - Apr 13, 2021 at 5:15PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Find out whether Wall Street can keep climbing to all-time highs.

Tuesday was a generally upbeat day on Wall Street, although the Dow Jones Industrial Average (^DJI 1.05%) failed to keep up with its broader index peers. The S&P 500 (^GSPC 1.05%) hit new all-time highs, while the Nasdaq Composite (^IXIC 0.00%) made more progress toward getting back to its high-water mark.


Percentage Change

Point Change




S&P 500



Nasdaq Composite



Data source: Yahoo! Finance.

The first few months of 2021 have been full of excitement about the potential for the U.S. economy to recover fully after a difficult 2020. Investors have waited to see confirmation of those gains in earnings, and on Wednesday, they'll get their first helping of first-quarter earnings releases from major banking institutions. With Goldman Sachs (GS 0.74%), JPMorgan Chase (JPM 1.28%), and Wells Fargo (WFC 1.92%) all set to give their latest read on the financial sector and the broader economy, bank earnings will either help support the market's bull move or disappoint bullish investors.

Four ATMs in a lobby with the Chase logo on the wall.

Image source: JPMorgan Chase.

What to watch for from top banks

Each of these three banks is different, with Wells Fargo having more of a consumer focus, Goldman Sachs leaning heavily toward institutional banking, and JPMorgan straddling the fence quite effectively to benefit from both businesses. Nevertheless, there are some common elements that investors will want to watch closely when banks give their latest results.

More than anything else, investors will want to see strong performance from financial stocks. That's likely to be relatively easy, because activity levels throughout the economy are ramping up compared to last year's first quarter, when the COVID-19 pandemic had just begun to have a major impact on earnings. Momentum from the last part of 2020 is likely to continue, although the pace of gains will probably slow as considerable reopening had already occurred by the fourth quarter of last year.

Longer term, bank investors will want to see what decisions banks make with their reserve levels. Higher loan loss reserves last year reflected considerable concern about how deep a recession might be. Already, banks have started to reverse those reserve decisions as things didn't turn out as badly as they could have. Stimulus measures played a vital role in keeping ordinary Americans afloat financially, and the most recent support should have a similar impact this quarter as well.

Business mix will be an interesting thing to watch as well. For instance, falling interest rates throughout the 2010s helped mortgage lenders by providing a constant stream of refinancing activity. However, recent rate increases could reverse that favorable trend. Some borrowers are rushing to lock in relatively low rates while they're still here, but a sustained uptick could take away what's been a vital source of recurring revenue for the banking industry.

The same is true for capital markets. The air pocket that high-growth stocks hit in February could weigh on bank trading operations, but also important has been the rise in the number of companies going public both through traditional initial public offerings and via special purpose acquisition company mergers. Earnings reports will give color on how well Goldman in particular has done capitalizing on opportunities.

Be ready for anything

With so much optimism, anything short of a glowing report could be enough to send the whole stock market lower. On the other hand, as the economy starts to heat up, banks should be in a position to take full advantage and give rosy outlooks for the remainder of the year and beyond.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

The Goldman Sachs Group, Inc. Stock Quote
The Goldman Sachs Group, Inc.
$299.23 (0.74%) $2.21
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$31,097.26 (1.05%) $321.83
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
$3,825.33 (1.05%) $39.95
JPMorgan Chase & Co. Stock Quote
JPMorgan Chase & Co.
$114.05 (1.28%) $1.44
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
$11,028.74 (0.00%) $0.00
Wells Fargo & Company Stock Quote
Wells Fargo & Company
$39.92 (1.92%) $0.75

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/03/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.