Will corporate earnings be strong enough to justify the record stocks rally?

The Dow and S&P 500 are at record highs thanks to Wall Street optimism about Covid-19 vaccines, federal government stimulus, a rebounding global economy and a surge in value stocks. Now it’s time for Corporate America to prove that investors should believe the hype.

A slew of big banks and other financial firms will report their first quarter earnings next week, giving the market its first glimpse of just how strong profits might be this year.

JPMorgan Chase, Goldman Sachs, Bank of America, Wells Fargo and BlackRock are just a few of the companies on tap to post their results.

According to data from FactSet Research, overall earnings for the S&P 500 should increase 24.5% in the quarter from a year ago and financial sector earnings are expected to surge nearly 80% from the first quarter of 2020.

Bank stocks have surged this year as long-term bond yields have picked up. Higher yields make lending more profitable for banks. The Financial Select Sector SPDR exchange-traded fund, which owns most of the top bank stocks, is up nearly 20% this year.

“The tone is going to be positive. We’re beginning to see the benefits of the economy recovering and banks have room to run with rising rates,” said Ken Leon, director of equity research at CFRA Research.

Leon said that banks will also benefit from the improving financial health of the US consumer. That will boost the banks’ credit card, student loan and auto lending portfolios. The housing market is likely to remain strong as well.

James Shanahan, senior equity research analyst at Edward Jones, added that expectations are “reasonably high” for the banks.

But he thinks that the top financial firms should have no problem delivering strong results, particularly due to the healthy demand for initial public offerings and blank check special purpose acquisition company (SPAC) deals, which help generate robust fees for the investment banks.

Coinbase is ready for its market closeup

Coinbase Global is set to make its Wall Street debut on Wednesday through a direct listing of its shares on the Nasdaq.

The trading exchange, which is benefiting from the surge in demand for bitcoin, ethereum and other cryptocurrencies, now has 56 million active, verified users and manages about $223 billion in crypto assets. That’s about 11% of the total $2 trillion cryptocurrency market.

Coinbase estimated earlier this month that sales reached $1.8 billion in the first quarter and that it earned a profit of $730 million to $800 million during the first three months of 2021. That’s up from sales of $190.6 million in the first quarter of 2020 and net income of about $32 million.

The company also said in a regulatory filing in March that based on private market transactions, the company’s market value was worth nearly $68 billion — a staggering increase from the $8 billion Coinbase was valued at it when it last raised money from venture capitalists in 2018.

Some on Wall Street are betting that the stock will go significantly higher once it begins trading.

Santosh Rao, head of research at Manhattan Venture Partners, said in a report last week that it thinks Coinbase could be worth $98 billion. To put that number in perspective, it’s more than $30 billion above the current market cap of NYSE owner Intercontinental Exchange.

But that valuation is “ridiculously high,” according to David Trainer, CEO of New Constructs, an investment research firm.

The Coinbase direct listing is the highlight of what could be a busy week for new stocks. Mobile marketing firm AppLovin, autonomous trucking startup TuSimple and senior-focused health care firm Agilon are each set to sell more than $1 billion in stock in initial public offerings.

Up next

Tuesday: US consumer price index

Wednesday: IEA crude oil inventories; Goldman Sachs, JPMorgan Chase and Wells Fargo earnings; Coinbase market debut

Thursday: US retail sales; unemployment claims; industrial production; Bank of America, BlackRock, Citigroup, Delta Air Lines, PepsiCo, Rite Aid, Taiwan Semiconductor and UnitedHealth earnings

Friday: US housing starts and building permits; BNY Mellon, Morgan Stanley and PNC earnings