The big banks have given us a reassuring start to the Q2 reporting cycle. If this trend continues next week when a broad and representative cross section of corporate America is on deck to come out with quarterly results, then we will have a tangible reason for the major indexes to build on their impressive post-Brexit run. Â
J.P. Morgan stayed true to its well-earned reputation for operational excellence, with solid gains in both consumer banking as well as in its capital markets platform. In consumer banking, they achieved impressive gains in both deposits as well loans, which helped it partly offset the negative impact from continued net-interest margin pressures. On the investment banking side, while the advisory business was largely tepid as expected, the trading platform, particularly on the fixed income side, impressed with its resilience. The capital markets momentum was visible in the Citigroup (C) group results as well, which has read-throughs for Bank of America (BAC) on Monday and Goldman Sachs (GS) on Tuesday. The Wells Fargo (WFC) report was a bit of a letdown as it simply didn’t show the level of consumer banking gains that many were looking for following the J.P. Morgan report.
We should keep in mind however that the reassuring piece of these bank results is not that they are great, but rather that they could have been a lot worse. After all, we got into this reporting cycle for the banks with estimates steadily coming down in the wake of lower treasury yields and Brexit-centric uncertainties. More than better than expected, bank results have been ‘better than feared’, which is nevertheless a positive. The earnings power of this key sector continues to remain shackled by low treasury yields, which refuse to follow the stock market’s lead despite growing signs of domestic economic momentum. The interest rates question is of course very complicated, as it not only reflects the market’s evolving Fed view, but also the widespread incidence of negative yields in many other developed markets.
The Q2 Earnings Scorecard (as of July 15th)
We now have Q2 results from 36 S&P 500 members that combined account for 10.1% of the index’s total market capitalization. Total earnings for these 36 companies are down -3.9% from the same period last year on -0.1% lower revenues, with 66.7% beating EPS estimates and 41.7% coming ahead of top-line expectations.
The focus lately has been on results from the big banks, with the brokers and regional players on the docket for releases next week. For the Finance sector as whole, we now have Q2 results from 25.7% of the sector’s total market cap in the S&P 500 Index. Total earnings for these Finance sector companies (primarily big banks) are down -5.4% from the same period last year on -0.2% lower revenues, with 57.1% beating EPS estimates and 42.9% beating revenue estimates.
The table below provides the current scorecard
