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Market Unimpressed with Bank Earnings

It isn’t hard to appreciate the market’s negative reaction to the Wells Fargo (WFC) and Citigroup (C) reports, but the lukewarm reaction to JPMorgan (JPM) report is likely reflective of continued weak sentiment for the group.

The fact is that JPMorgan’s report represented all around strength and offers useful read-throughs for what to expect from pure-play investment banks, trust banks and regional operators in the coming days. We have a busy reporting docket this week, with more than 170 companies coming out with quarterly results, including 60 S&P 500 members.  

As you can see in the year-to-date performance comparison of Citi, JPMorgan, and Wells Fargo shares relative to the S&P 500 index (orange line), the banks have lagged the broader market, with Citi and Wells doing real bad.

As discussed in this space last week, a big contributor to the group’s recent underperformance is the flattening yield curve. Lately, yield spreads have compressed significantly as the shorter end of the curve has gained ground in response to the market’s Fed expectations while long-term yields have been held down by lack of inflation expectations and safe-haven flows around the trade uncertainty.  
 
With respect to the actual results, there is plenty to like in the JPMorgan report while Citi’s results were modestly disappointing and Wells’ report was weak as well as ‘noisy’. JPMorgan’s loan portfolio increased a respectable +4% from the same period last year and +2% from the preceding period. Earnings at the bank’s investment banking unit increased +18% from the year-earlier period, with trading revenues increasing +13%. The one area of weakness was the mortgage unit, with mortgage volume down -10% and revenues down -6% from the year-earlier period.

Mortgages are a much bigger deal with Wells Fargo, with earnings in the bank’s mortgage unit down by almost a third from the same period last year and the overall loan portfolio down -1.4% from the earlier period. The bank had a number of ‘charges’ in its report as well, though we don’t exclude these charges from the bank’s ‘recurring’ earnings as these charges have effectively become a regular part of its results as it continues to put the September 2016 scandal behind it. The combination of increased outlays for regulatory and compliance strictures and weakness in the mortgage business resulted in -2.5% lower earnings on -2.8% reduction in revenues.

The Citi disappointment is centered primarily on weakness in trading and credit cards, with trading revenues down -1% from the year-earlier period even though management had guided towards a flat showing on this count. The bank’s loan portfolio was up +4% while expenses were flat from the year-earlier period. Thanks to lower taxes, Citi’s Q2 earnings were up +16.2% from the same period last year on +3.2% higher revenues.

Finance Sector Scorecard (as of Friday, July 13th)

We now have Q2 results from 4 of the 99 Finance sector companies in the S&P 500 index. Keep in mind however that these 4 companies account for 21.3% of the sector’s total market capitalization in the index.

Total earnings for these 4 Finance companies are up +11.4% from the same period last year on +3.6% higher revenue growth, with 75% beating EPS estimates and 100% beating revenue estimates. The comparison charts below put the results thus far in a historical context.

As you can see in the chart above, the sector’s growth picture is tracking above the 4- and 12-quarter averages, but below what we had seen from these stocks in the preceding quarter. These comparisons will likely change as Bank of America (BAC), Goldman Sachs (GS) and Morgan Stanley (MS) report quarterly results next week.

For the quarter as a whole, total Finance sector earnings are expected to be up +21% from the same period last year on +3.6% higher revenues. This would follow +25.1% earnings growth in 2018 Q1 on +4.8% higher revenues.

The table below shows the sector’s Q2 earnings expectations at the medium industry level. We show Q2 expectations in the context of what was actually reported in the preceding three quarters and what is expected in the following four periods at the medium-industry level.

The chart below shows the same data at the aggregate sector level. The strong earnings growth of the first half of 2018 is expected to continue in the back half as well.

Please note that the sector’s strong growth this year is for the most part to thanks to the tax legislation. You can see that in the above chart by focusing on the revenue growth pace (orange bars). Revenue growth for the group is positive, but nothing to get overly excited about.

Q2 Earnings Season Scorecard (as of July 13th, 2018)

We now have Q2 results from 27 S&P 500 members, with total earnings for these 27 companies up +19.1% from the same period last year on +9.7% higher revenues, with 88.9% of the companies beating EPS and revenue estimates.

We probably shouldn’t draw any firm conclusions from the results thus far, but this is nevertheless a good start to the Q2 reporting cycle, as the comparison charts below show.

The way to read these charts is that Q2 earnings and revenue growth (left-hand chart) for these 27 index members is above the 4- and 12-qurater averages, but the comparison to the preceding period (2018 Q1) is mixed, with earnings growth (+19.1%) tracking below and revenue growth (+9.7%) inline.
 

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Overall Expectations for 2018 Q2

Looking at Q2 as a whole, combining the actual results from the 27 index members with estimates from the still-to-come 473 companies, total earnings are expected to be up +19.5% from the same period last year on +8.2% higher revenues, with double-digit earnings growth for 11 of the 16 Zacks sectors. This would follow +24.6% earnings growth in 2018 Q1 on +8.7% revenue growth, the highest growth in almost 7 years.

The table below shows the summary picture for Q2, contrasted with what was actually achieved in Q1.

The chart below of weekly reporting calendar for the S&P 500 index shows that we will be in a good position to gauge trends by the end of this week, as we will have seen results from 87 index members by then.

The Earnings Growth Peak

The chart below compares current Q2 earnings growth expectations with what was actually achieved in the preceding 5 quarters and what is expected in the following 4 quarters.

When market commentators talk about earnings growth peak, it is the growth comparison in this chart they are referring to. Looking at this chart, it is obvious that growth has peaked already, with the pace decelerating going forward.

We should keep in mind however that actual results typically come in better than expected, with actuals exceeding estimates in the 3% to 5% range. This means that the 19.5% growth pace currently expected in Q2 will likely be closer to the 2018 Q1 tally when all is said and done.

The chart below shows the growth pace on trailing 4-quarter basis, which tends to smooth out the quarter-to-quarter jumps.

The two charts above provide different answers to the ‘peak earnings’ question. The first chart shows that the growth rate likely peaked in 2018 Q1, while second chart shows the expected to ‘peak’ to arrive in the last quarter of the year.

We should keep in mind that this earnings cycle got underway back in 2009 when the U.S. economy got out of its last recession. By this time, earnings growth should have come down to the historical ‘normalized’ pace in the mid-single digits level. The reason we have these impressive growth numbers is thanks mostly to the effect of the tax cuts, which will start wearing off towards the end of 2019.

In other words, earnings likely haven’t peaked yet. But with this cycle so long in tooth, we are steadily moving towards that stage.

Note: Sheraz Mian manages the Zacks equity research department. He is an acknowledged earnings expert whose commentaries and analyses appear on Zacks.com and in the print and electronic media. His weekly earnings related articles include Earnings Trends and Earnings Preview. He manages the Zacks Top 10 and Focus List portfolios and writes the Weekly Market Analysis article for Zacks Premium subscribers.

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Here is a list of the 172 companies including 60 S&P 500 and reporting this week.

Company

Ticker

Current Qtr

Year-Ago Qtr

Last EPS Surprise %

Report Day

Time

BANK OF AMER CP

BAC

0.63

0.46

5.08%

Monday

BTO

BLACKROCK INC

BLK

6.6

5.24

4.52%

Monday

BTO

HUNT (JB) TRANS

JBHT

1.28

0.88

-1.83%

Monday

BTO

SUPERCOM LTD

SPCB

-0.05

0.01

N/A

Monday

BTO

NETFLIX INC

NFLX

0.8

0.15

1.59%

Monday

AMC

AVID BIOSERVICS

CDMO

-0.15

-0.16

-64.29%

Monday

AMC

FIRST DEFIANCE

FDEF

1.02

0.82

17.35%

Monday

AMC

SANDVIK AB

SDVKY

0.26

0.2

42.11%

Tuesday

N/A

OMNICOM GRP

OMC

1.55

1.4

8.57%

Tuesday

BTO

PROLOGIS INC

PLD

0.71

0.84

8.11%

Tuesday

BTO

COMERICA INC

CMA

1.65

1.15

-1.28%

Tuesday

BTO

SCHWAB(CHAS)

SCHW

0.58

0.39

1.85%

Tuesday

BTO

JOHNSON & JOHNS

JNJ

2.06

1.83

2.49%

Tuesday

BTO

GOLDMAN SACHS

GS

4.67

3.95

22.57%

Tuesday

BTO

UNITEDHEALTH GP

UNH

3.03

2.46

4.11%

Tuesday

BTO

PROGRESSIVE COR

PGR

1.07

0.59

3.39%

Tuesday

BTO

FIRST HRZN NATL

FHN

0.36

0.27

13.33%

Tuesday

BTO

MERCANTILE BANK

MBWM

0.57

0.45

17.86%

Tuesday

BTO

NEOGEN CORP

NEOG

0.3

0.24

33.33%

Tuesday

BTO

NATIONSTAR MTGE

NSM

0.52

0.43

10.00%

Tuesday

BTO

TELENOR ASA-ADS

TELNY

N/A

0.27

N/A

Tuesday

BTO

UNITED CONT HLD

UAL

3.07

2.75

2.04%

Tuesday

AMC

CSX CORP

CSX

0.86

0.64

18.18%

Tuesday

AMC

ADTRAN INC

ADTN

-0.29

0.27

-68.42%

Tuesday

AMC

LEGACY TX FINL

LTXB

0.66

0.59

-27.78%

Tuesday

AMC

FNF GROUP

FNF

0.83

0.75

0.00%

Tuesday

AMC

RENASANT CORP

RNST

0.74

0.61

1.45%

Tuesday

AMC

WINTRUST FINL

WTFC

1.44

1.11

8.53%

Tuesday

AMC

HANCOCK HLDG CO

HWC

0.94

0.68

0.00%

Tuesday

AMC

FULTON FINL

FULT

0.13

0.26

-3.45%

Tuesday

AMC

HOPE BANCORP

HOPE

0.37

0.3

0.00%

Tuesday

AMC

PINNACLE FIN PT

PNFP

1.14

0.84

3.67%

Tuesday

AMC

MARTEN TRANS

MRTN

0.22

0.17

0.00%

Tuesday

AMC

AMER MOVIL-ADR

AMX

0.16

0.23

-42.00%

Tuesday

AMC

INTERACTIVE BRK

IBKR

0.46

0.32

12.50%

Tuesday

AMC

UTD COMM FIN CP

UCFC

0.19

0.16

0.00%

Tuesday

AMC

UNITED FIN BCP

UBNK

0.29

0.32

7.14%

Tuesday

AMC

MELLANOX TECH

MLNX

0.79

0.1

32.08%

Tuesday

AMC

Kinder Morgan

KMI

0.19

0.14

4.76%

Wednesday

N/A

AKZO NOBEL NV

AKZOY

N/A

0.49

16.13%

Wednesday

N/A

US BANCORP

USB

1.01

0.85

1.06%

Wednesday

BTO

ABBOTT LABS

ABT

0.71

0.62

1.72%

Wednesday

BTO

GRAINGER W W

GWW

3.77

2.74

22.58%

Wednesday

BTO

NORTHERN TRUST

NTRS

1.63

1.18

13.38%

Wednesday

BTO

TEXTRON INC

TXT

0.7

0.6

56.52%

Wednesday

BTO

MORGAN STANLEY

MS

1.08

0.87

13.28%

Wednesday

BTO

M&T BANK CORP

MTB

3.17

2.38

7.30%

Wednesday

BTO

UNION BANKSHARS

UBSH

0.62

0.46

9.26%

Wednesday

BTO

AB ELECTROLUX

ELUXY

N/A

1.03

N/A

Wednesday

BTO

ERICSSON LM ADR

ERIC

0.02

0.02

133.33%

Wednesday

BTO

NOVARTIS AG-ADR

NVS

1.28

1.21

2.40%

Wednesday

BTO

ASML HOLDING NV

ASML

1.44

1.08

12.32%

Wednesday

BTO

MGIC INVSTMT CP

MTG

0.35

0.31

8.57%

Wednesday

BTO

EBAY INC

EBAY

0.39

0.34

-6.82%

Wednesday

AMC

AMER EXPRESS CO

AXP

1.83

1.47

8.77%

Wednesday

AMC

SL GREEN REALTY

SLG

1.68

1.78

0.61%

Wednesday

AMC

INTL BUS MACH

IBM

3.03

2.97

2.08%

Wednesday

AMC

CROWN CASTLE

CCI

1.27

1.2

7.94%

Wednesday

AMC

UTD RENTALS INC

URI

3.5

2.37

20.59%

Wednesday

AMC

CDN PAC RLWY

CP

2.4

2.06

-1.39%

Wednesday

AMC

PTC INC

PTC

0.2

0.14

25.00%

Wednesday

AMC

CROWN HLDGS INC

CCK

1.58

1.12

17.50%

Wednesday

AMC

CVB FINL

CVBF

0.31

0.26

3.23%

Wednesday

AMC

PREFERRED BANK

PFBC

1.09

0.8

1.87%

Wednesday

AMC

BADGER METER

BMI

0.4

0.36

-33.33%

Wednesday

AMC

STEWART INFO SV

STC

N/A

0.79

-35.21%

Wednesday

AMC

UNIVL FST PRODS

UFPI

0.75

0.55

7.14%

Wednesday

AMC

TEXAS CAP BCSHS

TCBI

1.38

0.97

0.73%

Wednesday

AMC

UMPQUA HLDGS CP

UMPQ

0.34

0.26

25.00%

Wednesday

AMC

ALCOA CORP

AA

1.35

0.62

28.33%

Wednesday

AMC

CATHAY GENL BCP

CATY

0.9

0.64

-1.27%

Wednesday

AMC

TRISTATE CP HLD

TSC

0.37

0.29

5.88%

Wednesday

AMC

BERKSHIRE HILLS

BHLB

0.7

0.58

1.56%

Wednesday

AMC

BOSTON PRIV FIN

BPFH

0.23

0.27

13.64%

Wednesday

AMC

PLEXUS CORP

PLXS

0.82

0.74

-1.33%

Wednesday

AMC

EAGLE BCP INC

EGBN

1.06

0.81

0.97%

Wednesday

AMC

RESOURCES CNCTN

RECN

0.28

0.2

20.00%

Wednesday

AMC

CONSOL TOMOKA

CTO

1.18

0.67

-21.81%

Wednesday

AMC

GREAT SOUTH BCP

GSBC

0.92

1.14

9.20%

Wednesday

AMC

RLI CORP

RLI

0.53

0.61

15.38%

Wednesday

AMC

BANCORPSOUTH BK

BXS

0.55

0.42

8.00%

Wednesday

AMC

NOODLES & CO

NDLS

0.03

0.01

-100.00%

Wednesday

AMC

TRIUMPH BANCORP

TBK

0.52

0.51

-5.45%

Wednesday

AMC

COHEN&STRS INC

CNS

0.62

0.5

1.64%

Wednesday

AMC

ADVA OPTICAL

ADVOF

0.1

0.1

-185.71%

Thursday

N/A

DOVER CORP

DOV

1.21

1.04

2.65%

Thursday

BTO

SNAP-ON INC

SNA

2.95

2.6

2.20%

Thursday

BTO

BB&T CORP

BBT

1.01

0.78

5.43%

Thursday

BTO

KEYCORP NEW

KEY

0.42

0.34

0.00%

Thursday

BTO

FIFTH THIRD BK

FITB

0.57

0.46

18.75%

Thursday

BTO

PPG INDS INC

PPG

1.89

1.83

-1.42%

Thursday

BTO

UNION PAC CORP

UNP

1.93

1.45

1.82%

Thursday

BTO

DANAHER CORP

DHR

1.09

0.99

5.32%

Thursday

BTO

PHILIP MORRIS

PM

1.23

1.14

13.64%

Thursday

BTO

TRAVELERS COS

TRV

2.44

1.92

-8.21%

Thursday

BTO

BANK OF NY MELL

BK

1.03

0.92

13.40%

Thursday

BTO

ALLIANCE DATA

ADS

4.36

3.58

3.02%

Thursday

BTO

GENUINE PARTS

GPC

1.56

1.29

-3.79%

Thursday

BTO

NUCOR CORP

NUE

2.12

1

6.36%

Thursday

BTO

VOLVO AB-B

VLVLY

0.36

0.33

3.03%

Thursday

BTO

SONOCO PRODUCTS

SON

0.86

0.71

2.78%

Thursday

BTO

COUNTY BANCORP

ICBK

0.54

0.29

11.54%

Thursday

BTO

WEBSTER FINL CP

WBS

0.87

0.64

7.59%

Thursday

BTO

WABCO HOLDINGS

WBC

1.9

1.69

7.65%

Thursday

BTO

BLACKSTONE GRP

BX

0.7

0.59

41.30%

Thursday

BTO

DOMINOS PIZZA

DPZ

1.76

1.32

12.99%

Thursday

BTO

RPM INTL INC

RPM

1.18

1.02

16.67%

Thursday

BTO

ROGERS COMM CLB

RCI

0.81

0.74

18.33%

Thursday

BTO

TILE SHOP HLDGS

TTS

0.09

0.15

14.29%

Thursday

BTO

S&T BANCORP INC

STBA

0.6

0.65

7.14%

Thursday

BTO

ABB LTD-ADR

ABB

0.36

0.3

0.00%

Thursday

BTO

SANDY SPRING

SASR

0.8

0.61

6.67%

Thursday

BTO

SAP SE

SAP

0.98

0.76

43.86%

Thursday

BTO

SCHOLASTIC CORP

SCHL

1.39

1.31

14.29%

Thursday

BTO

TAIWAN SEMI-ADR

TSM

0.45

0.42

-1.67%

Thursday

BTO

UNILEVER PLC

UL

N/A

N/A

N/A

Thursday

BTO

UNILEVER N V

UN

N/A

N/A

N/A

Thursday

BTO

EAST WEST BC

EWBC

1.09

0.81

13.00%

Thursday

BTO

GATX CORP

GATX

0.92

1.32

69.23%

Thursday

BTO

HOME BANCSHARES

HOMB

0.44

0.35

2.44%

Thursday

BTO

POOL CORP

POOL

2.84

2.21

7.14%

Thursday

BTO

COMP TASK

CTG

0.08

0.06

0.00%

Thursday

BTO

WNS HLDGS-ADR

WNS

0.4

0.37

23.91%

Thursday

BTO

SYNTEL INC

SYNT

0.44

0.44

25.00%

Thursday

BTO

CHART INDUSTRIE

GTLS

0.45

0.21

21.05%

Thursday

BTO

MICROSOFT CORP

MSFT

1.07

0.98

11.76%

Thursday

AMC

CAPITAL ONE FIN

COF

2.62

1.96

13.25%

Thursday

AMC

E TRADE FINL CP

ETFC

0.89

0.52

11.39%

Thursday

AMC

CINTAS CORP

CTAS

1.65

1.18

10.48%

Thursday

AMC

PEOPLES UTD FIN

PBCT

0.32

0.24

0.00%

Thursday

AMC

SKYWORKS SOLUTN

SWKS

1.4

1.46

2.74%

Thursday

AMC

INTUITIVE SURG

ISRG

2.02

1.68

47.88%

Thursday

AMC

BRANDYWINE RT

BDN

0.34

0.34

0.00%

Thursday

AMC

MB FINANCL INC

MBFI

0.68

0.54

1.59%

Thursday

AMC

SKECHERS USA-A

SKX

0.4

0.38

0.00%

Thursday

AMC

FIRST FIN BC-OH

FFBC

0.51

0.37

13.04%

Thursday

AMC

EXPONENT INC

EXPO

0.3

0.25

-1.61%

Thursday

AMC

EQUITY BANCSHRS

EQBK

N/A

0.51

-4.08%

Thursday

AMC

SERVISFIRST BCS

SFBS

0.58

0.45

3.45%

Thursday

AMC

EASTGROUP PPTYS

EGP

1.12

1.05

5.45%

Thursday

AMC

WESTERN ALLIANC

WAL

0.98

0.76

3.23%

Thursday

AMC

GLACIER BANCORP

GBCI

0.53

0.43

-7.69%

Thursday

AMC

LIMELIGHT NETWK

LLNW

0

0

300.00%

Thursday

AMC

NORTHWESTERN CP

NWE

0.44

0.47

-1.67%

Thursday

AMC

ENTEGRA FINL CP

ENFC

0.52

0.36

6.00%

Thursday

AMC

SB FINANCIAL GP

SBFG

0.38

0.37

12.90%

Thursday

AMC

ASSOC BANC CORP

ASB

0.48

0.36

21.95%

Thursday

AMC

CELANESE CP-A

CE

2.37

1.79

18.22%

Thursday

AMC

QCR HLDGS INC

QCRH

0.79

0.65

5.63%

Thursday

AMC

SEI INVESTMENTS

SEIC

0.75

0.57

11.69%

Thursday

AMC

INDEP BK MASS

INDB

1.11

0.82

-2.91%

Thursday

AMC

STORA ENSO -ADR

SEOAY

N/A

0.21

33.33%

Friday

N/A

GENL ELECTRIC

GE

0.18

0.28

45.45%

Friday

BTO

BAKER HUGHES GE

BHGE

0.14

-0.11

50.00%

Friday

BTO

KANSAS CITY SOU

KSU

1.52

1.33

-3.70%

Friday

BTO

REGIONS FINL CP

RF

0.33

0.25

12.90%

Friday

BTO

SUNTRUST BKS

STI

1.3

1.03

16.22%

Friday

BTO

SCHLUMBERGER LT

SLB

0.43

0.35

0.00%

Friday

BTO

CITIZENS FIN GP

CFG

0.86

0.63

2.63%

Friday

BTO

STATE ST CORP

STT

2.01

1.67

2.53%

Friday

BTO

STANLEY B&D INC

SWK

2.03

2.01

2.96%

Friday

BTO

HONEYWELL INTL

HON

2

1.8

3.17%

Friday

BTO

V F CORP

VFC

0.33

0.29

3.08%

Friday

BTO

BANCO LATINOAME

BLX

0.57

0.44

-15.52%

Friday

BTO

GENTEX CORP

GNTX

0.41

0.31

0.00%

Friday

BTO

MANPOWER INC WI

MAN

2.35

1.82

4.24%

Friday

BTO

IBERIABANK CORP

IBKC

1.59

1.1

-3.52%

Friday

BTO

WIPRO LTD-ADR

WIT

0.06

0.07

-14.29%

Friday

BTO

OFG BANCORP

OFG

0.25

0.3

45.00%

Friday

BTO

SENSIENT TECH

SXT

0.92

0.87

-1.11%

Friday

BTO

CLEVELAND-CLIFF

CLF

0.54

0.26

61.90%

Friday

BTO

CEMENTOS PACASM

CPAC

N/A

0.08

37.50%

Friday

AMC


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