What’s going on here?

JPMorgan Chase (JP) kicked off earnings season on Friday, coming out swinging with expectation-shattering results.

What does this mean?

Anyone with a loan has been cursing high interest rates for jacking up their repayments, but the likes of JP are on the other end of that bargain. That’s why the big bank’s “net interest income” – the difference between what it makes on loans and pays to savers – was 4% higher last quarter than the same time last year. On top of that, JP’s banking division brought in 50% more revenue than last year – double analysts’ forecasts. Add it all together, and JP’s total revenue was 20% higher than last year, enough to bring quarterly profit up by an expectation-beating 25% compared to 2023.

Why should I care?

For markets: Big, bright, banks.

JP has set the standard for the rest of the sector, but the odds are stacked in big banks’ favor. High interest rates will have bolstered the income they make from loans. Plus, hardy stock markets likely encouraged firms to risk making the type of deals that JP and the rest get paid to work on. That explains why rival Citigroup also pulled out expectation-beating results on Friday. And that suggests analysts might have been right to predict that banks focused on “capital markets” will increase their profit by 23% this quarter from the same time last year.

The bigger picture: It’s raining cash and dogs.

The Federal Reserve put the biggest US banks through their paces in its regular “stress test” last month, which throws the proverbial kitchen sink at them to check their financial resilience. The test scenarios included unemployment shooting up, stocks dropping, and commercial real estate crumbling. The conclusion: banks seem to have more than enough cash in their just-in-case piggy, uh, banks – and analysts think that could trickle into higher payouts for shareholders down the line.

What’s going on here?

Analysts predict a decent earnings season, and now it’s time for investors to hold companies to that mildly optimistic standard.

What does this mean?

Professional analysts forecast how much companies will earn each quarter. And this time, they seem cautiously optimistic. They’ve lowered their profit forecasts for S&P 500 companies over the last three months, sure – but only by 0.5%, compared to an average historical cut of over 3%. Analysts also predict that companies in the index will have made 9% more profit than the same time last year, which would be the biggest jump since the first quarter of 2022. The number-crunchers are particularly optimistic about communication services, healthcare, and information technology firms. But they’re not expecting much from materials firms, industrial companies, and ol’ reliable consumer staples – in fact, profit in the consumer staples sector is predicted to lie flat.

Why should I care?

For markets: Underpromise and overdeliver.

S&P 500 companies that report higher-than-expected profits tend to see their stocks rise by an average of 1%, while those that fall short usually watch their stocks fall by 2%. So instead of putting in the extra shifts, companies might be tempted to appear a little more downtrodden than they really are throughout the quarter. That way, analysts expect less, and – voilà – investors are impressed when results roll in. But because analysts have held their forecasts steady, investors won’t cut companies much slack if they come up short.

For you personally: What to expect when you’re expecting.

Remember, short-term moves are common after earnings, but plenty of stocks will level out after all the excitement. So before you make any long-term decisions, assess why the company did better or worse than expected. Then scan through the latest data to see what’s next for the company, before updating your forecasts and valuation accordingly. If you’re still sweet on the stock, you might be on to a winner.