JP Morgan, Wells Fargo and Citigroup Kick Off Earnings Season Friday Morning

JPMorgan (JPM), Wells Fargo (WFC) and Citigroup (C) report second-quarter earnings before market open Friday, July 13. Here’s a look at what might be expected from their quarterly reports.

Print
https://tickertapecdn.tdameritrade.com/assets/images/pages/md/Business meeting discussing financial statements and stock performance
5 min read

JPMorgan Chase (JPM), Citigroup (C) and Wells Fargo (WFC) report second-quarter earnings before market open on Friday, July 13. 

The financial sector has been lagging the S&P 500’s (SPX) 2.9% return so far in 2018. JPM has fared better out of the three and is down 1.45% year to date, while WFC is down 8.22% and C is down 8.67%. 

All three of the banks passed the Federal Reserve’s stress tests in June and had their capital return plans approved. 

Shortly after the stress tests concluded and they got the green light from the Fed, WFC announced it would raise its quarterly dividend by four cents to $0.43 a share and increase its share buybacks to $24.5 billion over the next year; JPM announced it would increase its quarterly dividend from $0.56 per share to $0.80 per share and raised its buyback authorization to $20.7 billion; and C raised its dividend 13 cents, to $0.45 per share, and said it plans to repurchase $17.6 billion of shares over the next year. 

The big story weighing on the big banks has been the flattening yield curve, so it’s likely CEOs will discuss the current interest rate environment and how it could impact their businesses, a topic that’s come up regularly on earnings calls in recent quarters. 

There was about a week in May where the U.S. 10-year Treasury yield climbed above 3%, but other than that it has pretty much traded between 2.75% and 3% since February, which is around where it was trading at the end of 2013. The spread between the 10-year Treasury and the 2-year Treasury has continued to narrow, recently hitting 29 basis points, the lowest it has been since 2007. If rates do start to move meaningfully higher, that could dampen loan growth as both consumers and businesses might be less willing to borrow at higher rates. 


SPREAD BETWEEN 10-YEAR AND 2-YEAR TREASURIES. The difference between the 10-year and 2-year Treasury yields has continued to decline in 2018 and recently hit its lowest level since 2007. The chart above shows the spread between 10-year and 2-year Treasuries since mid-2007. TD Ameritrade clients can access economic data points by going to Analyze > Economic Data in the thinkorswim® platform. For illustrative purposes only.
Trade spats have moved beyond just talk and both China and the U.S. have gone back and forth levying new tariffs on each other. The potential for tariffs to keep escalating between the U.S. and its major trading partners, and the effect that could ultimately have on global growth, has been one area that many analysts and investors have expressed concerns about. 

The major banks are involved extensively throughout the global economy via debt and equity underwriting, consumer lending, advisory services and trading, so it’ll be interesting to see what the bank CEOs think about the situation and if they are expecting or starting to see any impacts on different regions. 

This back and forth on trade and other market events have contributed to heightened volatility in the second quarter, which analysts have said they are again expecting to provide a boost to revenue in the banks’ trading divisions, particularly equities. Some analysts have noted that the banks are facing easier comparisons to last year in their trading divisions as a result of low volatility throughout most of 2017. 

BIG BANKS 2018 PERFORMANCE. The year-to-date performance for JPMorgan (JPM, yellow line), Wells Fargo (WFC, purple line) and Citigroup (C, teal line) is charted above. So far this year, the big banks have been lagging the S&P 500’s (SPX) 2.9% return, as of July 11. Chart source: thinkorswim® by TD Ameritrade.   Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

JPMorgan Chase Earnings and Options Trading Activity

For the second quarter, JPM is expected to report adjusted EPS of $2.22 on revenue of $27.36 billion, according to third-party consensus analyst estimates. 

Around the upcoming earnings release, options traders have priced in a 1.9% stock move in either direction, according to the Market Maker Move indicator on the thinkorswim platform. Implied volatility was at the 37th percentile as of this morning. 

In short-term trading at the July 13 weekly expiration, activity has been heavier on the call side with higher volume at the 107 and 108 strike prices, while puts have been more active at the 104 strike. 

At next week’s monthly expiration on July 20, recent call trading has been concentrated at the 107 strike and open interest is highest at the 110 strike with 23,072 contracts open at the end of yesterday’s session. 

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.

Citigroup Earnings and Options Trading Activity 

C is expected to report adjusted EPS of $1.56 on revenue of $18.46 billion, according to third-party consensus analyst estimates. 

Options traders have priced in a 2.3% stock move in either direction around C’s upcoming earnings release, according to the Market Maker Move indicator. Implied volatility was at the 31st percentile as of this morning. 

In short-term trading at the July 13 weekly expiration, calls have been active at the 68, 68.5 and 69 strike prices. Trading on the put side has been lighter, with activity spread out between the 65 and 68 strikes. 

At the July 20 monthly expiration, volume has been high at the 68-strike call and over 6,000 of those contracts traded hands during yesterday’s session. Again, put volumes have been lighter and recent trading has been concentrated at the 67.5 strike. 

Wells Fargo Earnings and Options Trading Activity 

WFC is expected to report adjusted EPS of $1.12 on revenue of $21.68 billion, according to third-party consensus analyst estimates. 

Around the upcoming earnings release, options traders have priced in about a 2.6% stock move in either direction, according to the Market Maker Move indicator. Implied volatility was at the 32nd percentile as of this morning. 

In short-term trading at the July 13 weekly expiration, calls have seen heavier volume at the 57 and 57.5 strike prices, while puts have been active at the 55 and 56 strikes. 

Looking at next week’s July 20 monthly expiration, recent call volume has been higher at the 56.5, 57 and 57.5 strikes, with sizable open interest at the 57.5 strike. Trading on the put side has been heavy at the 55 strike, and open interest is also the highest at that level with over 72,000 contracts open as of this morning. 

Looking Ahead

Earnings kicks into high gear over the next few weeks. More reports from the major banks are coming up next week with Bank of America (BAC) reporting Monday, July 16, Goldman Sachs (GS) reporting Tuesday, July 17, and Morgan Stanley (MS) reporting Wednesday, July 18, all before market open. 
Some of the other notable earnings reports next week include: 
  • Netflix after market close Monday, July 16
  • Johnson & Johnson (JNJ) before market open Tuesday, July 17
  • IBM (IBM) after market close Wednesday, July 18
  • Microsoft (MSFT) after market close Thursday, July 19 
  • General Electric (GE) before market open Friday, July 20
For a look at what else is going on, check out today’s Market Update
Good Trading,
JJ

Visit the TD Ameritrade Markets Overview page for timely market information, articles, snapshots, earnings releases, and more.

Looking to stay on top of the markets on a daily basis? Check out my Daily Market Update on the Ticker Tape.  Or tune into the TD Ameritrade Network, which is live programming that brings you market news and helps you hone your trading knowledge.

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.

Call Us
800-454-9272

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.


adChoicesAdChoices

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.

Scroll to Top