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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 from this week. The outlook is 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 Jul 14. JPM has a Zacks Rank #2 (Buy) and an Earnings ESP of +1.32%.

Bank of America (BAC - Free Report) is likely to report on Jul 18. BAC has a Zacks Rank #3 and an Earnings ESP of -3.46%.

Wells Fargo & Company (WFC - Free Report) is likely to report on Jul 15. WFC has a Zacks Rank #3 and an Earnings ESP of -11.13%.

Goldman Sachs (GS - Free Report) is likely to report on Jul 18. GS has a Zacks Rank #3 and an Earnings ESP of -9.56%.

Citigroup Inc. (C - Free Report) is expected to report on Jul 15. Citigroup has a Zacks Rank #3 and an Earnings ESP of -0.79%.

Morgan Stanley (MS - Free Report) is likely to come up with its earnings release on Jul 14. Morgan Stanley has a Zacks Rank #4 and an Earnings ESP of -6.39%.

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 $1.62 falling from $1.63 seven days back and $1.69 one month ago.

The current-quarter EPS expectation for Goldman has fallen from $8.72 three months ago to $7.45 now. A week back, the estimate was $7.50. It was $8.43 one month ago and $8.65 two months ago. Bank of America has seen the current-quarter earnings estimate falling from $0.81 to $0.79 in the past three months.

Citigroup (C - Free Report) , which saw the current-quarter EPS estimates going down from $1.71 to $1.63 in the past three months. Wells Fargo has seen the current-quarter estimate falling from $0.98 to $0.84 in the last three-month period.

JPMorgan has been the only exception. It has seen the current-quarter earnings estimate rising from $2.84 to $2.87 in the past one month.

Hence, investors keeping an eye on the 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 lost 0.9%, 0.8%, 2.8%, 1.4%, 1.5%, respectively.

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) . IAI is up 0.7% past month (as of Jul 8, 2022).