Earnings season should boost hot financial stocks, RBC’s top bank analyst predicts

Earnings season should boost hot financial stocks, RBC’s top bank analyst predicts

One of the year's hottest trades may get a boost from earnings season.

RBC Capital Markets' Gerard Cassidy expects financials to exceed Wall Street expectations when they start reporting this week.

"The big beats are likely to come from the loan loss reserve releasing numbers," the firm's head of U.S. bank equity strategy told CNBC's "Trading Nation" on Friday. "Last year because of the pandemic, the banking industry set aside billions of dollars in anticipated credit losses, and the reserves for these losses weren't used."

Financials were the third worst performing S&P 500 group in 2020, behind energy and real estate. So far this year, Financial Select Sector SPDR Fund, which tracks the group, is up more than 19%.

According to Cassidy, that's about to change. He believes the banking sector will be among the best performers this year due to the unprecedented economic recovery.

"That was not factored in last year when the banks set aside this money to cover these losses," he said. "So, we expect in the first quarter that's going to be the big driver of the earnings beat, partially offset though with slower growth in the net interest income and maybe some net interest margin pressure as well."

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