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What's in Store for Bank ETFs This Earnings Season?
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Big banks will start releasing their quarterly numbers this week. The outlook is pretty bearish this time thanks to the flattening of the yield curve. Let’s delve into the earnings potential of the big six banking companies that could regulate the performance of the sector ahead.
According to our methodology, a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) when combined with a positive Earnings ESP increases our chances of predicting an earnings beat, while companies with a Zacks Rank #4 or 5 (Sell rated) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Inside Our Surprise Prediction
Among the big six, JPMorgan Chase & Co. (JPM - Free Report) is likely to report on Apr 13. JPM has a Zacks Rank #3 and an Earnings ESP of -0.59%.
Bank of America (BAC - Free Report) is likely to report on Apr 18. BAC has a Zacks Rank #3 and an Earnings ESP of -0.39%.
Wells Fargo & Company (WFC - Free Report) is likely to report on Apr 14. WFC has a Zacks Rank #3 and an Earnings ESP of -6.12%.
Goldman Sachs (GS - Free Report) is likely to report on Apr 14. GS has a Zacks Rank #5 and an Earnings ESP of -2.89%.
Citigroup Inc. (C - Free Report) is expected to report on Apr 14. Citigroup has a Zacks Rank #3 and an Earnings ESP of -5.30%.
Morgan Stanley (MS - Free Report) is likely to come up with its earnings release on Apr 14. Morgan Stanley has a Zacks Rank #5 and an Earnings ESP of -2.89%.
What’s in Store This Earnings Season?
As discussed above, the chances of a broad-based earnings beat are lower, thanks to the flattening yield curve. This has been reflected in the latest earnings estimates too, with Morgan Stanley’s current quarter EPS estimate of $1.76 falling from $1.87 seven days back and $1.95 one month ago.
The current-quarter EPS expectation for Goldman has fallen from $10.73 three months ago to $8.77 now. A week back, the estimate was $9.43. It was $10.00 one month ago and $10.42 two months ago. JPMorgan has seen the current-quarter earnings estimate falling from $3.02 to $2.74 in the past three months. The stock has seen estimates falling in every phase (seven-days, one-month and two-months).
Bank of America’s current-quarter expectation has, however, gone down from 78 to 77 cents in the past seven days. The same holds good for Citi, which saw the current-quarter EPS estimates going down from $2.16 to $1.93 in the past three months. Wells Fargo has seen the current-quarter estimate falling from $0.84 to $0.83 in the last seven-day period.
Hence, investors pinning hopes on an upbeat earnings season must be keen on knowing how financial ETFs like iShares U.S. Financial Services ETF (IYG - Free Report) , iShares US Financials ETF (IYF - Free Report) , Invesco KBW Bank ETF (KBWB - Free Report) , Financial Select Sector SPDR (XLF - Free Report) and Vanguard Financials ETF (VFH - Free Report) are placed before their earnings releases. These funds have considerable exposure to the aforementioned stocks.
Goldman has moderate exposure in the aforementioned ETFs. It is heavy on iShares U.S. Broker-Dealers & Securities Exchanges ETF (IAI - Free Report) .
Bottom Line
Given a super-hawkish Fed but risk-off trade sentiments due to the Russia-Ukraine war, the yield curve has flattened. The short-term rates have risen lately while long-term rates remained subdued in the first quarter.
However, the second quarter may behave in a different manner as it started with a spike in long-term bond yields. A rise in long-term bond yields should work wonders for bank ETFs as this will widen banks’ net interest rate margin. So, whatever the earnings surprise, investors can play these financial ETFs on the basis of the yield curve movement.
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What's in Store for Bank ETFs This Earnings Season?
Big banks will start releasing their quarterly numbers this week. The outlook is pretty bearish this time thanks to the flattening of the yield curve. Let’s delve into the earnings potential of the big six banking companies that could regulate the performance of the sector ahead.
According to our methodology, a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) when combined with a positive Earnings ESP increases our chances of predicting an earnings beat, while companies with a Zacks Rank #4 or 5 (Sell rated) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Inside Our Surprise Prediction
Among the big six, JPMorgan Chase & Co. (JPM - Free Report) is likely to report on Apr 13. JPM has a Zacks Rank #3 and an Earnings ESP of -0.59%.
Bank of America (BAC - Free Report) is likely to report on Apr 18. BAC has a Zacks Rank #3 and an Earnings ESP of -0.39%.
Wells Fargo & Company (WFC - Free Report) is likely to report on Apr 14. WFC has a Zacks Rank #3 and an Earnings ESP of -6.12%.
Goldman Sachs (GS - Free Report) is likely to report on Apr 14. GS has a Zacks Rank #5 and an Earnings ESP of -2.89%.
Citigroup Inc. (C - Free Report) is expected to report on Apr 14. Citigroup has a Zacks Rank #3 and an Earnings ESP of -5.30%.
Morgan Stanley (MS - Free Report) is likely to come up with its earnings release on Apr 14. Morgan Stanley has a Zacks Rank #5 and an Earnings ESP of -2.89%.
What’s in Store This Earnings Season?
As discussed above, the chances of a broad-based earnings beat are lower, thanks to the flattening yield curve. This has been reflected in the latest earnings estimates too, with Morgan Stanley’s current quarter EPS estimate of $1.76 falling from $1.87 seven days back and $1.95 one month ago.
The current-quarter EPS expectation for Goldman has fallen from $10.73 three months ago to $8.77 now. A week back, the estimate was $9.43. It was $10.00 one month ago and $10.42 two months ago. JPMorgan has seen the current-quarter earnings estimate falling from $3.02 to $2.74 in the past three months. The stock has seen estimates falling in every phase (seven-days, one-month and two-months).
Bank of America’s current-quarter expectation has, however, gone down from 78 to 77 cents in the past seven days. The same holds good for Citi, which saw the current-quarter EPS estimates going down from $2.16 to $1.93 in the past three months. Wells Fargo has seen the current-quarter estimate falling from $0.84 to $0.83 in the last seven-day period.
Hence, investors pinning hopes on an upbeat earnings season must be keen on knowing how financial ETFs like iShares U.S. Financial Services ETF (IYG - Free Report) , iShares US Financials ETF (IYF - Free Report) , Invesco KBW Bank ETF (KBWB - Free Report) , Financial Select Sector SPDR (XLF - Free Report) and Vanguard Financials ETF (VFH - Free Report) are placed before their earnings releases. These funds have considerable exposure to the aforementioned stocks.
Goldman has moderate exposure in the aforementioned ETFs. It is heavy on iShares U.S. Broker-Dealers & Securities Exchanges ETF (IAI - Free Report) .
Bottom Line
Given a super-hawkish Fed but risk-off trade sentiments due to the Russia-Ukraine war, the yield curve has flattened. The short-term rates have risen lately while long-term rates remained subdued in the first quarter.
However, the second quarter may behave in a different manner as it started with a spike in long-term bond yields. A rise in long-term bond yields should work wonders for bank ETFs as this will widen banks’ net interest rate margin. So, whatever the earnings surprise, investors can play these financial ETFs on the basis of the yield curve movement.