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Will Strong Earnings Send Bank Stocks (JPM, C, WFC) Soaring?

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In the midst of rollercoaster trading that has seen massive one-day swings in major stock indexes become commonplace, investors will now be forced to gear up for another busy stretch of earnings announcements—with the Q1 report season officially getting underway when several financial behemoths release their latest results on Friday.

Major bank stocks have slightly outpaced the S&P 500 over the past year, but interest rate uncertainty has created headwinds for the space recently. Yields on the benchmark 10-year Treasury bond have moved sideways over the last two months, marking a change to the uptrend in treasury yields that had been in place since September.

With that said, the Fed appears poised to continue tightening its policies, with market uncertainty almost entirely related to whether the central bank will announce four rates hikes, or more, this year. News on this front will continue to influence bank stocks as investors in the space clamor for the earnings growth catalyst that is a higher interest rate.

In the meantime, investors will be fixated on the latest quarterly earnings reports from the finance sector’s major bellwethers. So what should we expect from the upcoming report season? Let’s take a closer look.

The 30,000-Foot View

Based on the latest available estimates, we expect the Finance sector—of which the Major Banks industry is the biggest earnings contributor—to report Q1 earnings growth of 19.1% on 4.5% revenue growth. This would follow 0.6% earnings growth and 4% revenue growth in Q4.

The previous earnings cycle was complicated by massive one-time charges related to tax law changes, which probably explains some of the large uptick in the growth rate. But we also know that 1Q17 saw the Finance sector report earnings growth of 10.5%, so year-over-year comparisons are not exactly soft—making a 19%+ growth rate that much more impressive.

The Major Banks group is actually projected to be the slowest-growing industry within the Finance sector, although its estimate 11.1% EPS growth is certainly nothing to scoff at. Still, investors will hope that this group can get off to a great start with better-than-expected results from its top players, many of whom are reporting this Friday.

First Batch of Bellwether Reports

One key question that will be answered come Friday morning is whether a sharp uptick in market volatility has proved helpful to the markets and trading segments of the big banks. To answer this, investors will look to the reports of JPMorgan (JPM - Free Report) and Citigroup (C - Free Report) .

Based on our latest Zacks Consensus Estimates, we expect JPMorgan and Citigroup to report earnings growth of 38.2% and 19.1%, respectively. Our consensus estimates are also calling for these companies to post respective net sales growth of 11.6% and 4.5%.

Meanwhile, our exclusive non-financial metrics consensus estimate file projects that JPMorgan will report total revenue of $7.1 billion in its Markets & Investor Services segment. This would represent growth of 8.9% from the year-ago period, which would mark an improvement from the double-digit declines this unit has witnessed recently. We do not have comparable estimates for Citigroup, but investors should expect markets activity to be a key catalyst there as well.

Several major banks with little to no exposure to capital markets operation, including Wells Fargo (WFC - Free Report) and PNC Financial (PNC - Free Report) will also report on Friday. Our Zacks Consensus Estimates are calling for these firms to report earnings growth of 7.0% and 23.5%, respectively.

Bottom Line

Friday’s reports come at an interesting moment for the finance sector and the market as a whole. Both the sector and the broader market are facing headwinds and catalysts, with interest rate uncertainty and trade war woes outweighing the positives recently. Nevertheless, investors could be quick to forget about these challenges if earnings results are powerful.

Want more market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!

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