Earnings Season Part 1: The Banking Sector

Welcome to a special edition of the BUX Breakdown as Wall Street gets ready to kick off a new earnings season. Here’s everything you need to know for the week ahead (July 12th to 16th) in three minutes flat.

We are once again entering earnings season! The banking sector will get things started with results from JP Morgan Chase, Wells Fargo, Goldman Sachs, Bank of America, Citigroup and Morgan Stanley this week.

A closer look at Wall Street

The banking sector is recovering from a particularly difficult year, with the recent crisis adding a lot of pressure. On top of that, the looming threat of inflation hangs over the US banks, which are usually the first to be affected.

Investors are watching the inflation problem very carefully for its impact on the big banks. Indeed, when the Federal Reserve recently said that inflation may only be temporary, bank stocks surged. The Federal Reserve has also allowed banks to resume dividends and stock buybacks, as long as they passed certain stress tests. Morgan Stanley and Wells Fargo were able to double their dividend payment to investors.

Another trend to watch is big banks improving their ESG (environmental, social and governance) scores. There’s a trend among the banks to improve their risk management in the face of this recent crisis, and sustainable investing is one way for them to achieve that. For example, JP Morgan Chase recently acquired OpenInvest, a San Francisco company that specialises in positive impact investing. We wrote a detailed article on sustainable investing: find all the information about this topic on our site.

Which banks will outperform?

Several US banks will report their earnings between Tuesday and Thursday. However, there are lots of different expectations and estimates floating around. First, let’s look at the bank stocks with high expectations.

JP Morgan Chase will be the first American bank to reveal its earnings on Tuesday, July 13th. The company’s CFO recently said that results will be boosted by a dramatic growth in transaction fees. At the time, the bank’s earnings-per-share (EPS) was estimated at $3.05. Now it could come in as high as $4.50.

Wells Fargo is the second company expected to perform well, with results on Wednesday, July 14th. EPS is expected to come in 242.42% higher than last year, with revenue steady from last quarter.

Finally, Morgan Stanley, whose figures are expected on Thursday, July 15th, is announced as the third positive surprise of the week in the sector. The bank has a track record of beating expectations. Analysts expect the bank’s EPS to come in 19% higher year-on-year, with revenue up 3% in the same period.

Which banks will struggle?

Things aren’t so optimistic for Goldman Sachs, which reports earnings on Tuesday, July 12th. The company’s estimated revenue is down 16% year-on-year, although EPS should deliver a small boost.

Bank of America is also under some pressure when it reports earnings on Wednesday, July 13th. Some analysts estimate the stock is overvalued by about 30%.

Finally, the CFO of Citigroup has lowered expectations ahead of the company’s earnings call on Wednesday. He said revenue may fall, while expenses have risen for the group. Citigroup stock fell in the days after the statement.

How will this impact your portfolio?

Earnings results from the banking sector are important because they have a strong influence on the rest of the financial markets. Like an orchestra conductor, banks tend to set the tone for what’s going on on Wall Street and can therefore guide the rest of the market. With so many earnings reports condensed into one week, we could see a domino effect on the market in general.

If you want to learn more about earnings season and how it can affect your portfolio, check out our full article on the topic.

Economic and results calendar

Tuesday – Inflation rate in the United States, Germany and France. Quarterly figures from JPMorgan Chase, PepsiCo, Goldman Sachs.

Wednesday – Inflation rate in Britain. Industrial production in the eurozone. GDP in China. Quarterly figures from Bank of America, Citigroup, Wells Fargo, BlackRock, Delta Airlines.

Thursday – Unemployment figures in Great Britain Quarterly figures from Morgan Stanley, TomTom.

Thursday – Trade balance in Germany. Unemployment rate in the United States. Quarterly figures from Levi Strauss.

Friday – Trade balance in Italy and Spain. Inflation rate in the euro area.

Have a great week on the markets!

The BUX Breakdown was written by Clémentine Pougnet.

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All views, opinions, and analyses in this article should not be read as personal investment advice and individual investors should make their own decisions or seek independent advice. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication.