Bank Q3 earnings could ring recession alarm bells – Stock Market
US banks kick of earnings parade on Friday before market opens
Poised for negative results as high interest rates become a headwind
Historical low valuations cap downside
Banks underperform in 2023
This year started with the best possible omens for banks as they were expected to continue capitalising on higher net interest margins, which are essentially the difference between the interest income generated by long-term assets such as loans and the interest expense paid to short-term liabilities such as deposits. Meanwhile, the US economy has been exhibiting signs of resilience, allowing consumers to keep up with loan payments so far, but the third quarter exposed some risks in the sector.
![](https://www.xm.com/wp-content/uploads/2023/10/Banks-Performance.png)
Interest rates have now surpassed a level that could be considered beneficial for banks, increasing fears for an impulsive wave of defaults and forcing them to set aside more reserves to withstand an adverse scenario. The situation could get even worse for institutions that might need to sell assets to cover losses as surging bond yields in the third quarter have triggered huge unrealised losses in their bond portfolios.
At the same time, credit card delinquencies are rising at a historically rapid pace, corporate bankruptcies are piling up at levels similar to 2020, deposits are getting squeezed from persistent inflation, while student loan repayments are scheduled to resume after a three-year break. All the above paint a rather gloomy picture for the financial sector, with the only bright spot being the resurgence of tech IPOs after a two-year drought.
JP Morgan retains crown
JP Morgan has been the best performer among the US investment banks in 2023 as its reputable status attracted significant inflows from regional banks at risk amid the turbulence in March. That cash buffer enabled the banking behemoth to take full advantage of elevated interest rates through its loan business.
The bank is anticipated to record revenue of $39.57 billion, according to consensus estimates by Refinitiv IBES, which would represent a year-on-year increase of 18.15%. Additionally, Earnings per share (EPS) are estimated to rise 16% on an annual basis to $3.90.
From a technical perspective, JP Morgan’s stock has been undergoing a downside correction since July, which came to a halt at the 200-day simple moving average (SMA). Even though the price has recouped some losses ahead of the earnings report, its structure of lower highs and lower lows remains intact.
Citigroup under pressure amid major restructuring
Citigroup will face another tough earnings season, exhibiting major underperformance compared to the other two examined banks. The main reason behind this weakness is that its costly restructuring has not come to fruition yet.
The investment bank giant is set to post an annual revenue jump of 4.38% to $19.31 billion. However, its EPS is projected at $1.21, a 19.45% decrease relative to the same quarter last year.
Wells Fargo exhibits diverging signals
For Wells Fargo the picture remains blurry as on the one hand revenue continues to grow but earnings drop as the bank’s net interest margin is getting squeezed.
The leading financial institution is on track for a 3.08% annual increase in its revenue figure, which could reach $20.10 billion. Meanwhile, EPS is forecast to decline from $1.25 last quarter to $1.22, also marking a 6.03% drop in annual terms.
Valuations look cheap
Despite underperforming major benchmarks in 2023, US banks’ valuations appear rather compressed when compared both to the broader market and their historical averages. This is particularly strange as banks have historically outperformed in periods of high interest rates. Therefore, it seems that investors are pricing in difficult times ahead, while others could argue that this is an attractive entry point for long-term investors.
![](https://www.xm.com/wp-content/uploads/2023/10/Banks-Valuations.png)
Surely though, the risks are asymmetric at current levels as there is not much room to the downside even if we get a major negative surprise in upcoming earnings reports.
Mga Kaugnay na Asset
Pinakabagong Balita
Disclaimer: Ang mga kabilang sa XM Group ay nagbibigay lang ng serbisyo sa pagpapatupad at pag-access sa aming Online Trading Facility, kung saan pinapahintulutan nito ang pagtingin at/o paggamit sa nilalaman na makikita sa website o sa pamamagitan nito, at walang layuning palitan o palawigin ito, at hindi din ito papalitan o papalawigin. Ang naturang pag-access at paggamit ay palaging alinsunod sa: (i) Mga Tuntunin at Kundisyon; (ii) Mga Babala sa Risk; at (iii) Kabuuang Disclaimer. Kaya naman ang naturang nilalaman ay ituturing na pangkalahatang impormasyon lamang. Mangyaring isaalang-alang na ang mga nilalaman ng aming Online Trading Facility ay hindi paglikom, o alok, para magsagawa ng anumang transaksyon sa mga pinansyal na market. Ang pag-trade sa alinmang pinansyal na market ay nagtataglay ng mataas na lebel ng risk sa iyong kapital.
Lahat ng materyales na nakalathala sa aming Online Trading Facility ay nakalaan para sa layuning edukasyonal/pang-impormasyon lamang at hindi naglalaman – at hindi dapat ituring bilang naglalaman – ng payo at rekomendasyon na pangpinansyal, tungkol sa buwis sa pag-i-invest, o pang-trade, o tala ng aming presyo sa pag-trade, o alok para sa, o paglikom ng, transaksyon sa alinmang pinansyal na instrument o hindi ginustong pinansyal na promosyon.
Sa anumang nilalaman na galing sa ikatlong partido, pati na ang mga nilalaman na inihanda ng XM, ang mga naturang opinyon, balita, pananaliksik, pag-analisa, presyo, ibang impormasyon o link sa ibang mga site na makikita sa website na ito ay ibibigay tulad ng nandoon, bilang pangkalahatang komentaryo sa market at hindi ito nagtataglay ng payo sa pag-i-invest. Kung ang alinmang nilalaman nito ay itinuring bilang pananaliksik sa pag-i-invest, kailangan mong isaalang-alang at tanggapin na hindi ito inilaan at inihanda alinsunod sa mga legal na pangangailangan na idinisenyo para maisulong ang pagsasarili ng pananaliksik sa pag-i-invest, at dahil dito ituturing ito na komunikasyon sa marketing sa ilalim ng mga kaugnay na batas at regulasyon. Mangyaring siguruhin na nabasa at naintindihan mo ang aming Notipikasyon sa Hindi Independyenteng Pananaliksik sa Pag-i-invest at Babala sa Risk na may kinalaman sa impormasyong nakalagay sa itaas, na maa-access dito.