The overall theme for earnings season is revenue, a key measure of growth in any financial situation but certainly in the second quarter as we monitor the U.S. GDP amid a strong-dollar environment, a looming interest-rate hike and disorder in the European Union and China.
In the U.S., consumer spending and the housing market will underscore revenue reports from the biggest banks, which kick off earnings from the Dow Jones Industrial components Tuesday morning and have nudged their way into bellwether status since Alcoa kicked off the Dow. Banks, whether we like it or not, have found ways to generate revenue outside of the traditional banking functions of borrowing money and lending money. Attaching fees where they didn’t exist before—on services, minimum balances, etc.—should make a showing for the quarter.
Hopes are high for many banks as well because housing numbers have been relatively healthy and that strength should find its way to the balance sheets of the big mortgage players. The banks have largely performed well in recent years, delivering earnings that either met or beat expectations on a fairly consistent basis in a 0% interest-rate environment and their stock has appreciated in tandem.
Investors should be looking for more of the same this quarter, though undoubtedly there will be bumps.
JPMorgan Chase is first up for the sector as well as the Dow components, and could set the tone. Some 58% of companies reporting are expected to meet or outpace revenue estimates that they missed last quarter.
JPMorgan is expected to post earnings of $1.44 a share on revenues of $24.53 billion. While JPMorgan outpaced expectations in the first quarter, this quarter’s earnings projections are slightly below the year-ago quarter of $1.46 a share and some 3% below revenues of $25.35 billion.
In the prior quarter, the biggest bank by assets posted results that handily beat expectations with thanks to a rebound in fixed-income trading.
Traders on Monday were expecting a 2% move, though shares are off their June highs. Buyers of out-of-the-money calls in July and August are playing to the upside.
Wells Fargo & Co.’s revenues are linked to bigger service charges and fees as well as better mortgage banking results. Analysts are looking for $1.03 a share on revenue of $21.68 billion, down 2 cents a share from the year-earlier period on lower revenues of $21.07 billion.
The stock has rallied in recent sessions and traders on Monday were pricing in more of the same though there have been some put buyers, possibly hedging their positions.
Bank of America Corp. comes out Wednesday before the bell and analysts expect cost-cutting to drive revenues as well as earnings, which are projected to reach 36 cents a share on revenue of $21.32 billion. The first-quarter results disappointed investors with a 2 cents per share miss but traders are optimistic for this quarter. On Monday, there were big call buyers on the 17 strike in both July and August, all playing it to the upside. That momentum started Friday when there were 2.5 calls for every put, well outside the norm of 1.25 to 1.5 calls for every put.