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Rising recession fears weigh on the sector. The KBW Nasdaq Bank Index peaking earlier this year before seeing a steep drop in recent weeks. This as the big banks are set to kick off first quarter earning season next week. Joining me now, Allison Williams, Bloomberg Intelligence Director of Research, Global Strategy Team. Allison, thank you so much for joining us. Um wow, what a week for financials. Just a huge amount of selling here. What do you think happens next?

So clearly, the the quarterly trends are going to be old news with the reports and the focus is really on the risks ahead. Uh you know, the stocks had performed very well coming out of the election on lower regulatory risk, that's still intact. However, uh the key concern is credit risk. And that's really going to be the shift in the narrative both both in the earnings and the quarters ahead for the banks. Investors had really been focusing on monetary policy and interest rates. Now the focus is on fiscal policy and uh credit risk. I think uh you know, few things that we're going to see in the quarter. Again, it's mostly backward looking. Uh we are going to see strength in trading, uh record trading volumes in several asset classes in March, certainly uh a more active trading this quarter. However, the other capital markets businesses such as investment banking fees, there have been hopes for an investment banking fee recovery uh this year and we think that that uh enthusiasm is curved, if you will. Uh there was a strong start for the year, so we think these will be um okay for the quarter, uh but really the the outlook is incredibly uncertain and CEOs do not like to uh move ahead with those decisions when they uh sort of don't know what the um the outlook is. And so we think that the fee recovery will be dashed. Obviously, asset and wealth uh management businesses will be impacted. Again, more in the quarters ahead than the first quarter, um but it's really credit that investors will be focusing on.

Is there still any enthusiasm to be found within financials, particularly given, as you know, there was so much excitement around regulation and deal making getting ticked up. Is there still hope for some of that moving forward?

So the from the regulatory view, I think that is a a shift under this administration and I do think that that is a positive, especially if some of the uh capital regulations uh referred to as Basel uh three end game uh could be finalized under this administration. That that was really a key concern for the banks um in the prior administration um just uh because it would be tougher for the banks to uh return capital. They would have to hold more capital and it would uh damp returns on the business. So that is still intact. However, um, you know, the credit costs, uh which as I said earlier, have not been a focus for banks are are going to be a big question. And I think you could see some provisions in the quarter and that's going to be a key thing that we're watching because those um provisions basically will look ahead. Provisions are set to the life of the loan. And to the extent that uh the banks are changing their economic outlook, um our our view is that they will probably place a higher weight on a more negative outlook. So it's too early to tell, you know, what the outcome will be, but certainly waiting towards a higher risk scenario is going to increase those provisions, especially on the consumer side. uh for the banks uh to some extent in the quarter, that will be offset by some of the trading strength.

Allison, we'd love to have you back again soon. We've got a little bit more time. Thank you for coming on. We appreciate it.

Thank you.