JPMorgan Chase & Co. (JPM), Wells Fargo & Co (WFC): The One Indicator That Banks Will Soon Outperform

Wells Fargo & Co (NYSE:WFC) was the top small-business lender in the U.S. for 2012, based on Community Reinvestment Act data. Wells is also the leading originator of loans under the Small Business Association’s 7a program, originating $456 million of new loans to small businesses year to date in 2013.

When the Fed begins phasing out QE, growth will be stronger and more resilient for businesses across the board. Loan demand will be greater, and as a result, banks will increase growth and earnings.

3. The employment market will drive strong consumer demand
As unemployment improves, consumers have more money to spend, an increased ability to save and invest, and a stable cash flow to obtain and repay loans.

Banks’ mortgage arms will benefit most from this greater strength, but so will secondary businesses in wealth management, credit cards, auto loans, and deposit products. In particular, expect Wells Fargo & Co (NYSE:WFC) and JPMorgan Chase & Co. (NYSE:JPM) to cash in here.

Wells is the nation’s largest mortgage lender, with JPMorgan Chase & Co. (NYSE:JPM) second. Despite mixed mortgage results in Q1 at the big banks, encouraging data in real estate prices and new home starts will should continue to strengthen the broad market and mortgage divisions across the board.

Wells Fargo & Co (NYSE:WFC) and JPMorgan Chase & Co. (NYSE:JPM) are both well positioned to take advantage of secondary consumer banking needs. JPMorgan Chase & Co. (NYSE:JPM) has the nation’s largest ATM network and the second-largest branch network, and it originated more credit cards in Q1 than any other bank.

Wells Fargo & Co (NYSE:WFC) is the industry’s gold standard for cross-selling products, with the average retail customer using more than six different products. Wells has also invested heavily in recent years to build its wealth-management business. The company reports that it is the third-largest wealth manager based on number of financial advisors, and No. 4 based on assets under management. This investment in infrastructure yielded a 16% year-over-year increase in managed accounts for Q1, which contributed to Wells Fargo & Co (NYSE:WFC)’ 12% increase in trust and investment fee income.

Look to the bond yields
If the economy continues to progress on its current trend, then rising rates in the bond market will indicate broad market agreement that the economy has become self-reinforcing. When that happens, expect banks to benefit, and invest accordingly.

The article The 1 Indicator That Banks Will Soon Outperform originally appeared on Fool.com and is written by Jay Jenkins.

Fool contributor Jay Jenkins has no position in any stocks mentioned. The Motley Fool recommends Wells Fargo and owns shares of Bank of America, JPMorgan Chase, and Wells Fargo.

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