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JPMorgan and Citigroup are part of Zacks Earnings Preview
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For Immediate Release
Chicago, IL – October 9, 2017 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes JPMorgan (NYSE: (JPM - Free Report) – Free Report) and Citigroup (NYSE: (C - Free Report) – Free Report).
Every day, Zacks.com makes their Bull Stock of the Day available, free of charge. To see it, click here.
Are Bank Stock Gains Sustainable?
It has been a tough ride for bank stocks this year, with the industry unable to sustain the post-election momentum after mid-February 2017. As a group, bank stocks didn’t do much from mid-February through early September. But they have experienced dramatic gains since September 8th, with a number of major bank stocks trading at or near their highs for the year.
This lack of sustained performance notwithstanding, the industry remains an integral part of the ‘Trump Trade,’ with the industry handily outperforming the broader market since November 7th.
The chart below plots the performance of the Zacks Major Banks industry relative to the S&P 500 Index since the elections. Please note that the Zacks Major Banks industry includes all the money-center banks and big regionals that kick-off the Q3 earnings season for the industry on Thursday October 12th with the JPMorgan (NYSE: JPM – Free Report) and Citigroup (NYSE: C – Free Report) results.
What this shows is that stocks in the Zacks Major Banks industry are up +28.5% since November 7th, outperforming the S&P 500 index’s +19.2% gain in that same time period. The broader Finance sector, of which the Major Banks industry is big part, accounting for roughly 40% of the sector’s total earnings, is up +24% since November 7th.
Bank stocks are up more than +8% over the past month, roughly double the S&P 500’s performance in that time period. Optimism about tax policy changes appears to be a contributing factor to the group’s recent momentum. It’s hard to be overly optimistic about substance and timing of a policy legislation given the healthcare experience, but lower corporate taxes will be highly beneficial to the banking industry. As large as many of these big industry players are, they are still primarily domestic oriented businesses that stand to benefit from lower corporate tax rates (just as small-cap stocks do).
Trends in treasury yields have an outsized bearing on bank stocks since they are a big driver of bank margins. You can see this correlation in the year-to-date stock market performance of the industry relative to the 10-year treasury yield, with the industry’s bounce since September 8th coinciding with the most recent bottoming in the treasury yields.
Whether the group’s recent outperformance over the past month is a function of treasury yields, or hopes of tax law changes or both, it’s foundations appear shaky. Tax cuts would be good for banks, but who knows when or whether they will arrive. Treasury yields have been unable to cross the 2.4% level at the high end, though they reached that level three times since March this year. They are heading to that level again, with the 10-year yield getting a modest bump from the stronger-looking wage growth numbers in the otherwise ‘noisy’ September jobs report. But if recent history has to repeat itself, then we should look for yields to start moving down after getting close to the 2.4% level.
With these two supports for the group less than credible, let’s take a look at the group’s earnings potential to see if we can find support there.
What Are Banks Expected to Report in Q3?
Bank earnings failed to impress in the Q2 earnings season and all of the factors that weighed on Q2 results remained in place in Q3 as well, keeping expectations in check. Net interest margin benefited from the June Fed rate hike, but that incremental gain likely got offset by persistent deceleration in loan growth and soft trading revenues. The September quarter is traditionally a seasonally weak period on the capital markets front. This year’s Q3 was mixed, with stable fixed income trading flows and positive fixed income underwriting trends offset by weak equity trading volumes and issuance.
What all of this means is that bank stocks could benefit from low and relatively easy-to-beat expectations.
Total Q3 earnings for the Zacks Major Banks industry are expected to be down -5.1% from the same period last year on +2.2% higher revenues. This would follow +10% earnings growth in Q2 and +19.4% growth in 2017 Q2. JP Morgan and Citigroup, on deck to release Q3 results on Thursday, are expected to report -6.6% and -8.2% lower earnings from the year-earlier level, respectively.
The table below shows the sector’s Q3 earnings growth expectations at the medium-industry level contrasted with estimates for the following four quarters and actual results for the preceding three periods.
Please note that the Major Banks industry, of which JPMorgan, Citigroup and others are part, accounts for roughly 45% of the sector’s total earnings (insurance is the second biggest earnings contributor, accounting for about 25% of the total). The insurance industry has been hard hit by this year’s very active and impactful hurricane season, with estimates for insurers taking a big hit since the quarter got underway.
Total Q3 earnings are expected to be up +2.2% from the same period last year on +5% higher revenues. This would follow +11.1% earnings growth in 2017 Q2 on +5.5%, the second quarter in a row of double-digit earnings growth.
Estimates for Q3 came down as the quarter unfolded, with the current +2.2% growth down from +6.3% at the end of June.
Please note that while Q3 estimates have followed the well traversed path that we have been seeing consistently over the last few years, the magnitude of negative revisions nevertheless compares favorably to other periods. In other words, Q3 estimates have come down, but they haven’t come down by as much.
In terms of sector focus, the strongest growth in Q3 is coming from the Energy sector which benefits from easy comparisons. Excluding the Energy sector, the aggregate growth pace drops to +0.4% from +2.2%. The Conglomerate sector is the only other sectors with double-digit growth rates. Earnings growth is also strong for the Technology sector, with total earnings for the sector expected to be up +9.7% on +6.7% higher revenues.
On the negative side, Q3 earnings are expected to be below the year-earlier level for 8 of the 16 Zacks sectors, with double-digit declines for the Transportation, Aerospace, Basic Materials and Autos sectors.
About Zacks
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978. The later formation of the Zacks Rank, a proprietary stock picking system; continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time!Register for your free subscription to Profit from the Pros.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.
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JPMorgan and Citigroup are part of Zacks Earnings Preview
For Immediate Release
Chicago, IL – October 9, 2017 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes JPMorgan (NYSE: (JPM - Free Report) – Free Report) and Citigroup (NYSE: (C - Free Report) – Free Report).
To see more earnings analysis, visit https://at.zacks.com/?id=3207.
Every day, Zacks.com makes their Bull Stock of the Day available, free of charge. To see it, click here.
Are Bank Stock Gains Sustainable?
It has been a tough ride for bank stocks this year, with the industry unable to sustain the post-election momentum after mid-February 2017. As a group, bank stocks didn’t do much from mid-February through early September. But they have experienced dramatic gains since September 8th, with a number of major bank stocks trading at or near their highs for the year.
This lack of sustained performance notwithstanding, the industry remains an integral part of the ‘Trump Trade,’ with the industry handily outperforming the broader market since November 7th.
The chart below plots the performance of the Zacks Major Banks industry relative to the S&P 500 Index since the elections. Please note that the Zacks Major Banks industry includes all the money-center banks and big regionals that kick-off the Q3 earnings season for the industry on Thursday October 12th with the JPMorgan (NYSE: JPM – Free Report) and Citigroup (NYSE: C – Free Report) results.
What this shows is that stocks in the Zacks Major Banks industry are up +28.5% since November 7th, outperforming the S&P 500 index’s +19.2% gain in that same time period. The broader Finance sector, of which the Major Banks industry is big part, accounting for roughly 40% of the sector’s total earnings, is up +24% since November 7th.
Bank stocks are up more than +8% over the past month, roughly double the S&P 500’s performance in that time period. Optimism about tax policy changes appears to be a contributing factor to the group’s recent momentum. It’s hard to be overly optimistic about substance and timing of a policy legislation given the healthcare experience, but lower corporate taxes will be highly beneficial to the banking industry. As large as many of these big industry players are, they are still primarily domestic oriented businesses that stand to benefit from lower corporate tax rates (just as small-cap stocks do).
Trends in treasury yields have an outsized bearing on bank stocks since they are a big driver of bank margins. You can see this correlation in the year-to-date stock market performance of the industry relative to the 10-year treasury yield, with the industry’s bounce since September 8th coinciding with the most recent bottoming in the treasury yields.
Whether the group’s recent outperformance over the past month is a function of treasury yields, or hopes of tax law changes or both, it’s foundations appear shaky. Tax cuts would be good for banks, but who knows when or whether they will arrive. Treasury yields have been unable to cross the 2.4% level at the high end, though they reached that level three times since March this year. They are heading to that level again, with the 10-year yield getting a modest bump from the stronger-looking wage growth numbers in the otherwise ‘noisy’ September jobs report. But if recent history has to repeat itself, then we should look for yields to start moving down after getting close to the 2.4% level.
With these two supports for the group less than credible, let’s take a look at the group’s earnings potential to see if we can find support there.
What Are Banks Expected to Report in Q3?
Bank earnings failed to impress in the Q2 earnings season and all of the factors that weighed on Q2 results remained in place in Q3 as well, keeping expectations in check. Net interest margin benefited from the June Fed rate hike, but that incremental gain likely got offset by persistent deceleration in loan growth and soft trading revenues. The September quarter is traditionally a seasonally weak period on the capital markets front. This year’s Q3 was mixed, with stable fixed income trading flows and positive fixed income underwriting trends offset by weak equity trading volumes and issuance.
What all of this means is that bank stocks could benefit from low and relatively easy-to-beat expectations.
Total Q3 earnings for the Zacks Major Banks industry are expected to be down -5.1% from the same period last year on +2.2% higher revenues. This would follow +10% earnings growth in Q2 and +19.4% growth in 2017 Q2. JP Morgan and Citigroup, on deck to release Q3 results on Thursday, are expected to report -6.6% and -8.2% lower earnings from the year-earlier level, respectively.
The table below shows the sector’s Q3 earnings growth expectations at the medium-industry level contrasted with estimates for the following four quarters and actual results for the preceding three periods.
Please note that the Major Banks industry, of which JPMorgan, Citigroup and others are part, accounts for roughly 45% of the sector’s total earnings (insurance is the second biggest earnings contributor, accounting for about 25% of the total). The insurance industry has been hard hit by this year’s very active and impactful hurricane season, with estimates for insurers taking a big hit since the quarter got underway.
We discussed the hurricane impact in our weekly Earnings Trends report here >>>>Earnings Impact of Hurricanes
Expectations for Q3
Total Q3 earnings are expected to be up +2.2% from the same period last year on +5% higher revenues. This would follow +11.1% earnings growth in 2017 Q2 on +5.5%, the second quarter in a row of double-digit earnings growth.
Estimates for Q3 came down as the quarter unfolded, with the current +2.2% growth down from +6.3% at the end of June.
Please note that while Q3 estimates have followed the well traversed path that we have been seeing consistently over the last few years, the magnitude of negative revisions nevertheless compares favorably to other periods. In other words, Q3 estimates have come down, but they haven’t come down by as much.
In terms of sector focus, the strongest growth in Q3 is coming from the Energy sector which benefits from easy comparisons. Excluding the Energy sector, the aggregate growth pace drops to +0.4% from +2.2%. The Conglomerate sector is the only other sectors with double-digit growth rates. Earnings growth is also strong for the Technology sector, with total earnings for the sector expected to be up +9.7% on +6.7% higher revenues.
On the negative side, Q3 earnings are expected to be below the year-earlier level for 8 of the 16 Zacks sectors, with double-digit declines for the Transportation, Aerospace, Basic Materials and Autos sectors.
About Zacks
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978. The later formation of the Zacks Rank, a proprietary stock picking system; continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time!Register for your free subscription to Profit from the Pros.
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Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.