Mad Money

Cramer: This is the most important earnings season for the big banks in years

Key Points
  • "Mad Money" host Jim Cramer sees a market starving for positive catalysts and thinks the banks could hold the key to another leg higher.
  • Cramer recommends his top four picks ahead of the earnings season kick-off on Friday.
Most important earnings season for big banks in years

On Friday, earnings season will kick off in earnest with reports from four big banks — Citigroup, J.P. Morgan, Wells Fargo and PNC Financial — and CNBC's Jim Cramer thinks it'll be just what this market needs.

"This is the most important earnings season for the big banks in years," the "Mad Money" host said on Wednesday. "Some good performance by the financials [is] one of the few things that could get us back on track."

Equities have been particularly volatile in 2018, with the down roughly 8 percent from its January highs. After a major sell-off in early February, stocks have struggled to find lasting tailwinds.

"For months now, the bulls have been desperate for any kind of positive catalyst," Cramer said.

Without a steady flow of earnings news, big-picture narratives like U.S.-China trade relations, tech scandals and White House firings took hold, sending stocks reeling.

But despite the concerns, the economic backdrop is quite favorable for U.S. businesses, Cramer said, citing low unemployment, steady wage growth and solid consumer confidence.

"Put it all together and you can understand why so many investors expect this earnings season to get us out of the rut that we've been stuck in," he said. "The banks get the first bite at the apple and they're in a particularly enviable situation."

First, Cramer reminded homegamers that bank stocks benefit when interest rates, both the short-term ones set by the Federal Reserve and the long-term ones controlled by the market, go up.

So when the Fed's March minutes, released Wednesday, indicated more rate hikes to come, Cramer anticipated boosted profits for banks with big deposit bases like Bank of America.

Investment banks like Goldman Sachs, on the other hand, are getting a boost from increased volatility in the market, the "Mad Money" host said.

"I cannot overstate the importance of this shift," Cramer said. "All last year, the investment banks saw their trading businesses get hammered because equities and bonds were so calm."

Traditional investment banking has also seen an uptick: the global mergers and acquisitions market saw record highs in the first quarter, and with 45 IPOs on the books so far this year, banks' advisory and underwriting businesses are likely on fire, Cramer said.

Heading into earnings season, Cramer's top stock picks were Bank of America, Citigroup, J.P. Morgan and Goldman Sachs.

He saw Bank of America as the purest play on rising interest rates; Citigroup for its value and "underappreciated" investment banking arm; J.P. Morgan for its global advantage and strong management team; and Goldman Sachs for the boost in volatility and healthier climate for investment banking.

The only stock Cramer told investors to actively avoid was the stock of Wells Fargo considering recent reports that the bank could incur a massive fine for loan abuses.

"Bottom line? Come Friday, at last, we'll finally have some major individual earnings to fall back on, with the large banks leading the way. I'm feeling real good about Citigroup, J.P. Morgan, Bank of America and Goldman Sachs next week," Cramer said. "Even if you don't want to own them into earnings, listen to what these bankers have to say because they're incredibly important. I bet they could turbo-charge the opening of this long-awaited earnings season."

WATCH: Cramer highlights the importance of bank earnings

Cramer: This is the most important earnings season for the big banks in years

Disclosure: Cramer's charitable trust owns shares of Citigroup, J.P. Morgan and Goldman Sachs.

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