Persistent uncertainty regarding trade, combined with mixed conviction over the yield curve, pressured financial stocks Wednesday, sending the Financial Select Sector SPDR ETF (XLF) lower by 0.50%.
But all of gloom can quickly turn to optimism with positive earnings results from three of the nation’s four biggest banks, which are due to report second quarter fiscal 2018 earnings results before the opening bell Friday. Among them is JPMorgan Chase (JPM), which has beaten Wall Street’s earnings estimates in ten straight quarters. Despite this string on strong execution, JPM shares are down 0.51% year to date, trailing both the Dow and the S&P 500 index.
While JPMorgan is broadly regarded as the best-run name among its “too big to fail” peers, — referring to Bank of America (BAC), Citigroup (C) and Wells Fargo (WFC) — investors are nonetheless gun-shy about the effect a trade war might have on its business. And it would seem many analysts, including the bank’s own executives, are also taking a wait-and-see attitude with the direction of the market.
And this makes it even tougher to forecast any sort of outperformance from JPMorgan, given that banks, in general, have yet to realize the expected positive impact of the Federal tax overhaul. All told, JPMorgan’s absolute results and its outlook for the third quarter and for all of 2018 will offer some insight about how realistic Wall Street’s expectations are for the entire sector.
For the three months that ended June, analysts expect the New York-based bank to earn $2.22 per share on revenue of $27.35 billion. This compares to the year-ago quarter when the bank earned $1.82 per share on $25.76 billion in revenue. For the full year, ending in December, earnings are projected to rise 29.3% year over year to $9.03 per share, while full-year revenue of $110.11 billion would rise 6% year over year.
Beyond the top- and bottom-line numbers, analysts will also focus on sustained improvements in key areas of business, namely the credit business, rising net interest margins (the equivalent of earnings) and stable net-charge-off rates. The continued struggles in the trading business, caused by increased regulation and low volatility, will also be closely-watched. To the extent JPMorgan can meet or exceed these numbers and improve overall fundamentals, its shares should begin to trend higher.
Elsewhere, analysts will inquire about the company’s rumored interest in acquiring Deutsche Bank (DB)? Last week German magazine reported JPMorgan, along with Industrial and Commercial Bank of China, could buy a stake in the troubled German Bank. Indeed, JPMorgan is on record of having shot down those rumors, but questions as to whether the bank “should” be interested in Deutsche Bank may remain valid for the foreseeable future.