Big US Banks the Focus This Week

Big US Banks the Focus This Week

$BAC, $C, $GS, $JPM, $MS, $WFC

Investors will focus on profits, a more Dovish Fed, and lower interest rates as major US banks kick off what many analysts expect to be the 1st Quarter of contracting corporate earnings since Y 2016.

On Friday, 12 April, JPMorgan Chase & Co and Wells Fargo & Co will post results to begin the earnings season in earnest.

Citigroup Inc and Goldman Sachs Group Inc will report the following Monday, followed by Bank of America Corp and Morgan Stanley Tuesday.

In the wake of the Fed’s cautious shift due to signs of softness in the US economy and the subsequent drop in 10-year US Treasury yields, S&P 500 banks are seen posting Y-Y Q-1 earnings growth of 2.3%, down from 8.2% forecast 6 months ago, that according to Refinitiv data.

In the 1st 3 months of this year, the S&P 500 bounced back from a sell-off in December, gaining 15.4%, its biggest Quarterly increase since Y 2009. But financials under-performed the wider market, gaining 8.0% in the Quarter as the new low-interest-rate normal that boosted other sectors was a headwind for the banks.

Since October, analysts have lowered their expectations for S&P 500 earnings in Y 2019, with Q-1 estimates dropping from 8.1% growth to a Y-Y decliner of 2.2%. That would mark the 1st Q of negative growth since the earnings “recession” that ended in Y 2016.

Within the sector median Y-Y revenues from both equities and fixed income, currencies and commodities trading to have dropped by 15% in the Quarter.

Of the big 6 banks: Goldman Sachs, Morgan Stanley and JPMorgan have seen the biggest declines” in Q-1 earnings estimates.

But some analysts believe the effects on banks of a more accommodative Fed and the flattened yield curve are very much overstated, we are in that group.

Yes, rates and the yield curve have had an effect on bank earnings. But the impact from the Fed’s decision is minor one, and we see bank fundamentals as very stable.

Recent history shows that large US financial institutions have beat analyst estimates at a higher rate than the broader market.

In the 8 most recent quarters, the 6 banks have beat earnings estimates 83.3% of the time on average, compared with the S&P 500’s 75.4% average beat rate.

Additionally, bank revenues surprised to the upside 79.2% of the time, while S&P 500 company revenues came in ahead of analyst estimates 68.3% of the time, per Refinitiv data.

And of course, the big banks are companies that tend to drive sentiment. So stay tuned for the coming earnings reports in this column.

Have a terrific weekend

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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