“If you believe, as I do, that interest rates have peaked and our economy is almost certainly in for a soft landing – thank you very much, [Fed Chair] Jay Powell – then the banks should be worth owning by now,” he said. “But let’s see what happens when the big four money centers report on Friday.”
Cramer listed JPMorgan as a company that remains fairly popular on Wall Street, betting that its stock could “move higher” over time but might not be a top pick for the year. Bank of America and Citigroup would need a few positive quarters to win investor confidence, with the latter in particular needing to stage a comeback after announcing a major restructuring effort in September, he said.
Cramer said he's most excited about Wells Fargo's prospects, even though the stock was recently downgraded by two analysts. He said the company's new management was committed to cutting costs and improving technology, and suggested there may be an imminent buying opportunity.
Cramer said investors should pay particular attention to net interest income and net interest margin, which measure what banks earn by taking deposits and then lending out those funds at higher interest rates. This data can provide insight into the performance of a bank's core business.
Investors should also pay close attention to commentary, particularly on the state of consumer and business credit, Cramer said. Bank stocks could fall if credit quality proves poor, but robust credit could lead to higher earnings estimates for the rest of the year. Because they are large credit card issuers, these companies may also offer insights into consumers' spending habits.
Finally, Cramer recommended keeping an eye on the investment banking activities of financial institutions. He said there was optimism on Wall Street about a comeback for the sector this year, driven by a booming initial public offering market and more bond issuance.
“We've also seen an uptick in mergers and acquisitions, which is great for investment bankers – the advisory fees they get on these deals are phenomenal,” he said. “An investment banking comeback could allow us to see financials perform exceptionally well this year.”
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Disclaimer The CNBC Investing Club Charitable Trust holds shares of Wells Fargo.