US STOCK OUTLOOK:
- Major banks will continue to report their first-quarter results in the coming days and weeks
- Investors will get another chance to assess the health of the financial sector on Thursday, with earnings from Goldman Sachs, Wells Fargo, Citigroup, and Morgan Stanley on tap
- If JPMorgan’s numbers are any guide to what lies ahead, there is little to be bullish about
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Major banks will continue reporting first quarter results in the coming days, but enthusiasm for the group has waned after JPMorgan (JPM) posted a 21% decline in sequential profit and a 42% slump in earnings from a year ago (Q1 EPS or $2.63 vs. $2.73 consensus expectations, declined from $3.33 in Q4 2021 and $4.50 in Q1 2021).
Investors will have another opportunity to assess the health of the sector on Thursday, when some of the largest financial institutions, such as Goldman Sachs (GS), Wells Fargo (WFC), Citigroup (C) and Morgan Stanley (MS) announce key performance metrics before the opening bell.
Commercial and investment banks, as lenders and deal-making institutions in the capital markets, have a front row view of the economyso traders should watch their bottom- and top-line figuresbut more importantly, pay close attention to their forward guidance amid rising consumer prices, cooling activity and rising yields† Althoughhigher interest rates bode well for lenders, slowthere growth depressions loan demand, while wage inflation erodes margins.
Focusing on JPMorgan, its CEO, Jamie Dimon, didn’t hit the panic button during the earnings call, but noted in no uncertain terms that there are “storm clouds on the horizon”, citing inflation and geopolitics as two powerful forces threatening the economy† Asked about the broader path ahead, Dimon did not predict a recession, but did not rule it out entirely, offering caution about the outlook. In this regard, the bank’s decision to increase credit reserves and set aside $902 million for potential losses is a clear reflection of rising downside risks rather than a bullish signal to get excited about.
If JPM’s lackluster numbers are anything to go by, we should expect more of the same in the coming days and weeks. This could mean further losses for financial stocks and sector-linked ETFs such as XLF.
Analysts expect earnings per share of $8.61 on revenue of $12.67 billion. Quarterly results and guidance, however, could disappoint as investment banking revenues are projected to decline further as firms delay merger and acquisition transactions and postpone IPOs amid increased volatility and growing risks about the economy
Wall Street forecasts earnings per share of $0.81 on revenue of $17.89 billion. WFC has more exposure to commercial banking, so the slowdown in capital market deal making activity will not be overly to the detrimental institutions bottom line.having said thattraders should focus on guidance for loan demand and interest income, and whether or not higher rates in the economy areas translateing into juicer margins firmwide.
Investors expect earnings per share of $1.66 on a $18.52 revenue for the first quarter, but the market is not very upbeat about the bank’s results. Citi has a poor execution track record and has been a serial underperformer in recent years. Its fortunes may not change this time around, as the bank likelysustained large losses in connection with its withdrawal from Russia, complicating its turnaround efforts. In terms of guidance, the nextand interest income outlook will also be key for Citigroup.
Analysts expects earnings per share of $1.69 on a $292.51 billion revenue. Like Goldman Sachs, Morgan Stanley’s performance will be negatively impacted by falling investment banking fees, such as those tied to initial public offerings and debt issuance deals. Revenue for its wealth management arms is also likely to disappoint on account of equity market turbulence. The bank’s FICC division, however, may see significant windfalls resulting from higher trading volume and volatility levels recorded during the first quarter following the invasion of Ukraine.
Earnings expectations summary:
Source: Earnings Whispers
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—Written by Diego Colman, Market Strategist & Contributor