As investors continue to react to the fresh earnings reports from banking giants like JPMorgan Chase (JPM - Free Report) , Citigroup (C - Free Report) , and Wells Fargo (WFC - Free Report) , all eyes will soon shift to investment behemoth Goldman Sachs (GS - Free Report) , which is slated to report its Q2 results on Tuesday morning.
However, a quick glance at Monday’s price action reveals a cautionary tale for the financial space. Despite earnings beats across the board, all three of the aforementioned bank stocks are slumping to start the week, suggesting that there is something more to the story here.
Does this hesitation foreshadow a similar post-earnings slump from Goldman Sachs? Will the factors weighing down the banking giants also impact the more investment-focused companies? Let’s take a closer look.
Banks Slump on Earnings Beats
Although some investors consider the second quarter to be the least important in the fiscal calendar, our rising rate environment and tumultuous political climate mean that no banking report can be ignored right now (also read: Q2 Earnings Season Finally Here: JPM, C, WFC, PNC Beat).
JPMorgan Chase posted earnings of $1.82 per share and revenues of $26.4 billion, topping the Zacks Consensus Estimates of $1.57 and $25.2 billion, respectively. Nevertheless, JPM shares fell about 1% on Friday and continued their minor slump on Monday morning.
Certain aspects of the company’s report, such as its low loss provision, could be interpreted as temporary strengths. However, JPMorgan reported strong lending figures, which is an indicator of an active economy. In fact. the overall strength of the economy was confirmed by the latest comments from CEO Jamie Dimon, who also mentioned that his company would be growing even faster without the gridlock in Washington D.C.
Citigroup also surpassed both earnings and revenue expectations, with profits of $1.28 per share and revenues of $17.90 billion surpassing the respective Zacks Consensus Estimates of $1.21 and $17.32 billion. Overall, revenues were up 2% year-over-year, although the company’s markets & securities unit slipped about 5%, which could be more of a precursor for Goldman’s report.
Wells Fargo also joined in on the earnings beat fun, but its quarterly revenues came in just shy of our consensus estimate. The bank witnessed strong growth in interest income, due in part to increases from trading assets and investment securities. On the other hand, non-interest income slipped about 7% thanks to weakness in the mortgage banking segment and lower net gains from trading activities.
Outlook for Goldman
Interestingly enough, the strength of the global economy could be what hurts Goldman this quarter. Indeed, lower volatility in both the bond and equity markets is expected to lead to less trading, which means lower trading revenues for the investment banker (also read: Will Bleak Trading Revenue Hurt Goldman's Q2 Earnings?).
Additionally, one of the more sluggish corners of the global economy, the M&A space, is hurting Goldman. Continued weakness in this area, as well as soft results in the debt underwriting segment, will contribute to the company’s Q2 challenges.
Headed into its report, Goldman Sachs sits at a Zacks Rank #4 (Sell). Additionally, its Earnings ESP of -1.43% does not improve its likelihood of an earnings beat. With trading activity down and financial stocks struggling to move higher even after earnings beats, Goldman looks like a risky play right now.
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