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How Will Bank ETFs Perform in Light of Q2 Earnings?
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Big banks will start releasing their quarterly numbers this week. Let’s delve into the earnings potential of the big six banking companies that could drive 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) , Wells Fargo & Company (WFC - Free Report) and Citigroup Inc. (C - Free Report) are likely to report on Jul 14.
JPM has a Zacks Rank #3 and Earnings ESP of negative 2.28%.
WFC has a Zacks Rank #3 and an ESP of +0.16%.
C has a Zacks Rank #3 and an ESP of negative 8.41%.
On Jul 18,Bank of America Corporation (BAC - Free Report) is likely to come up with its earnings release. The stock has a Zacks Rank #3 and a negative ESP of 6.14%.
Morgan Stanley (MS - Free Report) too is likely to report on Jul 18. MS has a Zacks Rank #3 and Earnings ESP of negative 12.50%.
Goldman (GS - Free Report) is likely to come up with its earnings release on Jul 19. Goldman has a Zacks Rank #3 and a negative ESP of 5.14%.
Are Negative ESPs At All a Threat to Financial ETFs?
As discussed above, chances of a broad-based earnings beat are low-to-moderate as most stocks are experiencing a negative ESP.
However, despite negative ESPs we believe financial stocks and ETFs are up for a rally in the coming days on the likelihood of steepening yield curve. The United States is currently witnessing rising rate environment.However, with the release of some upbeat economic data points, the long-term bond yields may go up in the coming days. This, in turn, may steepen the yield curve.
As banks seek to borrow money at short-term rates and lend at long-term rates, a steepening yield curve earns more on lending and pays less on deposits, thereby leading to a wider spread. This expands net margins and increases banks’ profits.
So, whatever the earnings surprise is, investors should track the yield curve movement before playing bank stocks. Hence, investors pinning hopes on a bank rally must be keen on knowing how financial ETFs likeiShares 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) . Broader bank ETFs have slightly downbeat in the past week.
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How Will Bank ETFs Perform in Light of Q2 Earnings?
Big banks will start releasing their quarterly numbers this week. Let’s delve into the earnings potential of the big six banking companies that could drive 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) , Wells Fargo & Company (WFC - Free Report) and Citigroup Inc. (C - Free Report) are likely to report on Jul 14.
JPM has a Zacks Rank #3 and Earnings ESP of negative 2.28%.
WFC has a Zacks Rank #3 and an ESP of +0.16%.
C has a Zacks Rank #3 and an ESP of negative 8.41%.
On Jul 18,Bank of America Corporation (BAC - Free Report) is likely to come up with its earnings release. The stock has a Zacks Rank #3 and a negative ESP of 6.14%.
Morgan Stanley (MS - Free Report) too is likely to report on Jul 18. MS has a Zacks Rank #3 and Earnings ESP of negative 12.50%.
Goldman (GS - Free Report) is likely to come up with its earnings release on Jul 19. Goldman has a Zacks Rank #3 and a negative ESP of 5.14%.
Are Negative ESPs At All a Threat to Financial ETFs?
As discussed above, chances of a broad-based earnings beat are low-to-moderate as most stocks are experiencing a negative ESP.
However, despite negative ESPs we believe financial stocks and ETFs are up for a rally in the coming days on the likelihood of steepening yield curve. The United States is currently witnessing rising rate environment.However, with the release of some upbeat economic data points, the long-term bond yields may go up in the coming days. This, in turn, may steepen the yield curve.
As banks seek to borrow money at short-term rates and lend at long-term rates, a steepening yield curve earns more on lending and pays less on deposits, thereby leading to a wider spread. This expands net margins and increases banks’ profits.
So, whatever the earnings surprise is, investors should track the yield curve movement before playing bank stocks. Hence, investors pinning hopes on a bank rally must be keen on knowing how financial ETFs likeiShares 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) . Broader bank ETFs have slightly downbeat in the past week.