Bank of America (BAC), Goldman Sachs (GS) and Morgan Stanley (MS) report earnings early next week. Here’s a look at what might be expected from the major banks’ quarterly results.
After the first round of bank earnings this morning, next week kicks off with a string of more reports from the financial sector. Bank of America (BAC) reports before the open on Monday, Apr. 16, Goldman Sachs (GS) reports before the open on Tuesday, Apr. 17, and Morgan Stanley (MS) reports before the open on Wednesday, Apr. 18.
There have been several tailwinds the banks have enjoyed in recent quarters: Economic growth in the U.S. and abroad has remained strong, U.S. tax reform was passed, the Fed has continued to hike rates, and steps to deregulate aspects of the financial industry have moved forward.
When JP Morgan (JPM) reported this morning, CEO Jamie Dimon said in a statement that “the global economy continues to do well and we remain optimistic about the positive impact of tax reform in the U.S., as business sentiment remains upbeat, and customers benefit from job and wage growth.”
Volatility has returned to more normalized levels in Q1 2018 amid concerns among investors and analysts regarding trade wars and geopolitical tensions, combined with possible sector rotation and other factors. The S&P 500 (SPX) moved 1% or more on 23 trading days in Q1 2018, according to Reuters.
To put that into perspective, that’s already three times more than all of 2017. Year-over-year declines in trading revenues in fixed income, commodities, currencies and equities pressured results at most of the major banks throughout 2017. Many analysts are expecting mid- to high-single digits increases in trading revenue at the big banks compared to last year.
M&A activity and IPOs have also picked up in 2018 compared to 2017, providing investment banks with more potential opportunities to earn advisory and underwriting fees. In the first three months of the year, there have been 3,774 M&A deals worldwide that totaled $890.7 billion, a 17-year high, according to research firm Mergermarket. 51 companies have gone public on U.S. exchanges and raised $17.2 billion through Apr. 11, up slightly from the 37 IPOs that raised $16.2 billion over the same timeframe in 2017, according to Dealogic.
As interest rates have ticked higher, BAC management has increased their guidance for net interest income—the difference between interest earned on the bank’s assets and what it has to pay out on its liabilities. Management previously said they expect a $3.3 billion increase in net interest income with each 100 basis point (1%) increase in interest rates.
BAC COMPANY PROFILE.
Consumer banking is BAC’s largest division, closely followed by its corporate and commercial banking. TD Ameritrade clients can analyze potential revenue drivers of a stock on the Fundamentals tab on the thinkorswim® platform. The Trefis price estimate vs. current market price is as of 4/12/18. Trefis information and estimates used in Company Profile are provided by Insight Guru, a separate and unaffiliated firm. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.
For Q1, BAC is expected to report adjusted EPS of $0.58, up from $0.41 in the prior-year quarter, on revenue of $22.9 billion, according to third-party consensus estimates. That’s the highest EPS estimate for the company over the past eight quarters, while the revenue estimate is just shy of the $23 billion BAC generated in Q2 2017.
Around BAC’s upcoming report, options traders have priced in about a 2% potential stock move in either direction, according to options data on the thinkorswim® platform. As of this morning, implied volatility was at the 49th percentile.
In short-term trading at the Apr. 20 monthly expiration, calls have been active at the 31 strike price, with volume of 38,215 contracts during yesterday’s session. Volume has been lighter for puts and spread out across a range of strikes.
Further out at the May 18 monthly expiration, the 31-strike call and the 32-strike call have been heavily traded, with volume of 7,981 and 10,296 contracts during yesterday’s session, respectively. Again, volume has been lighter on the put side and spread out across a range of strikes.
Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined price over a set period of time.
Some of the bigger news from GS was in early March when the company announced that Harvey Schwartz, President and Co-Chief Operating Officer, would be retiring Apr. 20, and that David Solomon will serve as sole President and Chief Operating Officer. The news comes amid reports from the Wall Street Journal that long-time CEO Lloyd Blankfein is preparing to retire.
On Tuesday, GS is expected to post adjusted EPS of $5.67, compared to $5.15 in the prior-year quarter, on revenue of $8.9 billion, according to third-party consensus estimates. The revenue estimate is a big jump from GS’ Q4 2017 report when analysts were expecting $7.6 billion on the top line. The earnings estimate is also a big jump from last quarter’s estimate of $4.90 per share, however, it is in line with the $5.68 GS reported in Q4 2017.
GS SINCE START OF 2018.
Shares of GS are up 1.53% on the year as of, 4/12/18 slightly beating the S&P 500 (SPX). The stock has hit the $275 level a few times since the start of the year, but hasn’t been able to break through. The bottom chart shows the stock’s implied volatility, which has dipped a bit from its spike in early February. Chart source: thinkorswim® by TD Ameritrade. Data source: Standard & Poor’s. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.
Around the upcoming earnings release, options traders have priced in about a 3% stock move in either direction, according to data from the thinkorswim® platform. As of this morning, implied volatility was at the 58th percentile.
In short-term trading at the Apr. 20 expiration, calls have been active at the 260 and 265 strike prices, with higher activity at the 270 strike, although that’s a little further out of the money. On the put side, the 250 and 255 strikes have been more active.
Looking at the May 18 expiration, there has been a smattering of activity spread out across strikes. Open interest for both calls and puts was highest at the 255 strike, with 11,305 contracts open on the call side and 10,710 on the put side as of this morning.
MS is expected to report adjusted EPS of $1.28, up from $0.94 in the prior-year quarter, on revenue of $10.4 billion, according to third-party consensus estimates. Both the revenue and earnings estimates are a jump from when the company last reported. In Q4 2017, analysts were expecting $0.77 on revenue of $9.1 billion; MS reported adjusted EPS of $0.84 on revenue of $9.5 billion that quarter.
MS SINCE START OF 2018.
Shares of MS are up 3.18% on the year as of 4/12/18, beating the S&P 500 (SPX) by a couple of points. Over the past several weeks, the stock has seen some support at the $52 level. The bottom chart shows the stock’s implied volatility, which remains close to where it was at during the selloff in early February. Chart source: thinkorswim® by TD Ameritrade. Data source: Standard & Poor’s. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.
Around the upcoming earnings release, options traders have priced in about a 2.7% stock move in either direction, according to options data from the thinkorswim® platform. As of this morning, implied volatility was at the 78th percentile, on the higher end.
At the Apr. 20 monthly expiration, there’s been smattering of activity across calls, with trading more active on the put side. On the put side, trading has been heavier at the 52.5 and 54 strikes. Open interest for both calls and puts was highest at the 55 strike price, with 12,135 contracts open at the 55-strike call and 10,937 contracts open at the 55-strike put as of this morning.
At the May 18 monthly expiration, most of the activity has been concentrated at the 55 strike. During yesterday’s session, volume was 3,515 contracts for the 55-strike call and 2,510 contracts for the 55-strike put.
Earnings season continues to pick up next week. On top of the major banks, these are some of the other larger companies scheduled to report:
The week after that brings a tech-heavy stretch of results. Alphabet (GOOG, GOOGL), Amazon (AMZN), Microsoft (MSFT), Intel (INTC), Facebook (FB) and Twitter (TWTR) are just some of the many names on the docket the week of Apr. 23-27. If you have time, make sure to check out today’s market update for a look at what else is going on across markets.
Good Trading,JJ @TDAJJKinahan
Check out all of our upcoming Webcasts or watch one of the many archived ones, covering a wide range of topics from market commentary to portfolio planning basics to trading strategies for active investors. No matter your experience level, there’s something for everybody. Looking to stay on top of the markets? Tune in to the TD Ameritrade Network, which is live programming that brings you market news and helps you hone your trading knowledge. Plus, there's a new playlist on the TD Ameritrade YouTube Channel: Introduction to Volatility, featuring recent content from the TD Ameritrade Network.
The TD Ameritrade Network is brought to you by TD Ameritrade Media Productions Company. TD Ameritrade Media Productions Company and TD Ameritrade, Inc. are separate but affiliated subsidiaries of TD Ameritrade Holding Corporation.
for thinkMoney ®
Financial Communications Society 2016
for Ticker Tape
Content Marketing Awards 2016
Probability analysis results from the Market Maker Move indicator are theoretical in nature, not guaranteed, and do not reflect any degree of certainty of an event occurring.
TD Ameritrade and all third parties mentioned are separate and unaffiliated companies, and are not responsible for each other's policies or services.
Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell, or hold.
Market volatility, volume, and system availability may delay account access and trade executions.
Past performance of a security or strategy does not guarantee future results or success.
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.
Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.
The information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.
This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.
TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2018 TD Ameritrade.