Stock Market News – JPMorgan and Citi could act as bellwethers for bank earnings; trade and yield angst remain at play
October 11, 2018 3:26 pm
JPMorgan Chase and Citigroup, the largest and fourth-largest US banks by market capitalization correspondingly, will be among corporations kicking off the Q3 earnings season for big financials. The two will be releasing their quarterly results before Wall Street’s opening bell on Friday. Analysts’ consensus recommendation for both is “buy”, which matches the average recommendation for the Banks peer group.
According to Thomson Reuters estimates, JPMorgan’s quarterly earnings per share (EPS) are projected to stand at $2.26, this being the result of a downward revision from $2.29 from four weeks ago. If actual results match forecasts, this would represent a rise by 28.4% compared to the same quarter last year when the firm earned $1.76 per share. Meanwhile, Wall Street analysts’ EPS expectations range from $2.16 to $2.40, while it is noteworthy that the company managed to exceed consensus estimates in all four quarters that preceded.
Technically, Wednesday’s broad-based equity market rout which JPMorgan also fell victim to, has turned the near-term bias for the company’s stock to the downside. Evidently, the RSI collapsed as the stock closed at a near three-month low of $111.47. In the medium-term, the share price falling below both the 50- and 100-day moving average lines definitely constitutes a bearish tilt, though overall the outlook looks predominantly neutral, with both MAs roughly flat at the moment; also price action is only marginally below the 100-day MA.
A move above the 100-day MA at $112.09 on the back of an encouraging quarterly report, may meet resistance around the 50-day MA at $115.13. Further above, late September’s peak of $119.23, which is just shy of the all-time high of $119.33 hit earlier in the year, would come into scope. On the downside and in the event of disappointing results, the shares could find support around the $110 round figure, which was a region of congestion in the past. Lower still, additional support could come around the $102.20 low and the $100 handle.
Turning to Citigroup, EPS for the quarter ending September 2018 are expected to come in at $1.69, after being revised upwards from $1.66 four weeks ago. Should the company’s bottom line come in line with projections, such an outcome would reflect an increase of around 19% relative to 2017’s respective quarter when EPS stood at $1.42. Additionally, earnings estimates for the firm range from $1.63 to $1.77 per share. Similar to rival JPMorgan, Citi surpassed Wall Street analysts’ EPS forecasts in all four previous quarters.
In terms of Citi’s technical picture, it is looking awfully similar to JPMorgan’s, namely bearish in the short-term and mostly neutral in the medium-term.
Potential zones of resistance to an advancing stock are the ones around the 50-day MA at $71.50 – notice that the area around this point encapsulates numerous tops from the past – and the high of $75.24. Steeper gains would turn the focus to late February’s high of $78.42. On the flipside, a falling stock may meet immediate support around the 100-day MA at $69.87 and the low of $68.91. Not far below lies the stock’s lowest since July of $68.08, while lower still, support could occur around $64.39, this being a one-year nadir posted in late June.
Beyond earnings, revenue growth is another area that without a doubt has the capacity to dictate stock market movement for the two banks in the aftermath of their quarterly releases. In this respect, revenue projections during Q3 are at $27.5 billion for JPMorgan and at $18.45bn for Citi.
Briefly touching on bank-specific considerations that can affect the outlook for the group, the US rate trajectory and regulatory issues are some of the potential drivers that rank high on the agenda. On the rate path, the Federal Reserve continues to communicate, perhaps more so lately, that it remains firmly on track to continue normalizing rates. Higher rates are bank-positive as they are supportive of higher margins given the institutions’ business models. One “complication” was posed by the flattening US yield curve, i.e. the narrowing difference between long- and short-dated bond yields. This counterbalanced some of the benefits for banks from rising short-term yields, as net interest margins – the difference between what financial institutions charge for loans and what they pay depositors – remained subdued. However, as evidenced from the chart below the “narrowing trend” has reversed in recent months.
On the regulatory front, the prospect of scaling down on related burdens imposed in the aftermath of the global financial crisis could well depend on November’s mid-term elections. Republicans losing power in that electoral fight, which is currently seen as the most likely outcome, is seen as weakening the odds for deregulation in the banking sector. This is expected to weigh on banks and more broadly financials.
Year-to-date, JPMorgan is trading higher by 4.2% and Citi lower by 6.0%. These compare to the S&P 500’s +4.2%. JPMorgan is also one of the thirty blue chips that comprise the Dow Jones Industrial Average, which is up by 3.6% so far in 2018.
Other big financials releasing earnings tomorrow are Wells Fargo and PNC Financial Services Group. Bank of America will be on tap on Monday, with Blackrock, Goldman Sachs and Morgan Stanley following on Tuesday.
Given Wednesday’s sharp selloff, the deepest one on Wall Street in eight months, the results from the aforementioned companies that are first in the reporting line may well determine overall market sentiment. In other words, earnings beats could reinstate the bullish phase that saw major benchmarks posting record high after record high. Alternatively, disappointing numbers, especially if seen as connected to the Sino-US trade dispute, are likely to fuel an extension of yesterday’s leg lower.
It could also be the case that trade and yield angst end up dominating attention, stealing the thunder from corporate releases. In relation to the latter of the two, it is interesting that an equity retreat that was partially attributed to Treasury yields climbing to cycle highs, also acted as a drag on banks; as expressed before, elevated yields are bank-positive. The confusion dissipates though in light of the fact that month-to-date, the S&P 500 Banks index is comfortably outperforming the overall S&P.
JPMorgan Chase and Citigroup, the largest and fourth-largest US banks by market capitalization correspondingly, will be among corporations kicking off the Q3 earnings season for big financials. The two will be releasing their quarterly results before Wall Street’s opening bell on Friday. Analysts’ consensus recommendation for both is “buy”, which matches the average recommendation for the Banks peer group.
According to Thomson Reuters estimates, JPMorgan’s quarterly earnings per share (EPS) are projected to stand at $2.26, this being the result of a downward revision from $2.29 from four weeks ago. If actual results match forecasts, this would represent a rise by 28.4% compared to the same quarter last year when the firm earned $1.76 per share. Meanwhile, Wall Street analysts’ EPS expectations range from $2.16 to $2.40, while it is noteworthy that the company managed to exceed consensus estimates in all four quarters that preceded.
Technically, Wednesday’s broad-based equity market rout which JPMorgan also fell victim to, has turned the near-term bias for the company’s stock to the downside. Evidently, the RSI collapsed as the stock closed at a near three-month low of $111.47. In the medium-term, the share price falling below both the 50- and 100-day moving average lines definitely constitutes a bearish tilt, though overall the outlook looks predominantly neutral, with both MAs roughly flat at the moment; also price action is only marginally below the 100-day MA.
A move above the 100-day MA at $112.09 on the back of an encouraging quarterly report, may meet resistance around the 50-day MA at $115.13. Further above, late September’s peak of $119.23, which is just shy of the all-time high of $119.33 hit earlier in the year, would come into scope. On the downside and in the event of disappointing results, the shares could find support around the $110 round figure, which was a region of congestion in the past. Lower still, additional support could come around the $102.20 low and the $100 handle.
Turning to Citigroup, EPS for the quarter ending September 2018 are expected to come in at $1.69, after being revised upwards from $1.66 four weeks ago. Should the company’s bottom line come in line with projections, such an outcome would reflect an increase of around 19% relative to 2017’s respective quarter when EPS stood at $1.42. Additionally, earnings estimates for the firm range from $1.63 to $1.77 per share. Similar to rival JPMorgan, Citi surpassed Wall Street analysts’ EPS forecasts in all four previous quarters.
In terms of Citi’s technical picture, it is looking awfully similar to JPMorgan’s, namely bearish in the short-term and mostly neutral in the medium-term.
Potential zones of resistance to an advancing stock are the ones around the 50-day MA at $71.50 – notice that the area around this point encapsulates numerous tops from the past – and the high of $75.24. Steeper gains would turn the focus to late February’s high of $78.42. On the flipside, a falling stock may meet immediate support around the 100-day MA at $69.87 and the low of $68.91. Not far below lies the stock’s lowest since July of $68.08, while lower still, support could occur around $64.39, this being a one-year nadir posted in late June.
Beyond earnings, revenue growth is another area that without a doubt has the capacity to dictate stock market movement for the two banks in the aftermath of their quarterly releases. In this respect, revenue projections during Q3 are at $27.5 billion for JPMorgan and at $18.45bn for Citi.
Briefly touching on bank-specific considerations that can affect the outlook for the group, the US rate trajectory and regulatory issues are some of the potential drivers that rank high on the agenda. On the rate path, the Federal Reserve continues to communicate, perhaps more so lately, that it remains firmly on track to continue normalizing rates. Higher rates are bank-positive as they are supportive of higher margins given the institutions’ business models. One “complication” was posed by the flattening US yield curve, i.e. the narrowing difference between long- and short-dated bond yields. This counterbalanced some of the benefits for banks from rising short-term yields, as net interest margins – the difference between what financial institutions charge for loans and what they pay depositors – remained subdued. However, as evidenced from the chart below the “narrowing trend” has reversed in recent months.
On the regulatory front, the prospect of scaling down on related burdens imposed in the aftermath of the global financial crisis could well depend on November’s mid-term elections. Republicans losing power in that electoral fight, which is currently seen as the most likely outcome, is seen as weakening the odds for deregulation in the banking sector. This is expected to weigh on banks and more broadly financials.
Year-to-date, JPMorgan is trading higher by 4.2% and Citi lower by 6.0%. These compare to the S&P 500’s +4.2%. JPMorgan is also one of the thirty blue chips that comprise the Dow Jones Industrial Average, which is up by 3.6% so far in 2018.
Other big financials releasing earnings tomorrow are Wells Fargo and PNC Financial Services Group. Bank of America will be on tap on Monday, with Blackrock, Goldman Sachs and Morgan Stanley following on Tuesday.
Given Wednesday’s sharp selloff, the deepest one on Wall Street in eight months, the results from the aforementioned companies that are first in the reporting line may well determine overall market sentiment. In other words, earnings beats could reinstate the bullish phase that saw major benchmarks posting record high after record high. Alternatively, disappointing numbers, especially if seen as connected to the Sino-US trade dispute, are likely to fuel an extension of yesterday’s leg lower.
It could also be the case that trade and yield angst end up dominating attention, stealing the thunder from corporate releases. In relation to the latter of the two, it is interesting that an equity retreat that was partially attributed to Treasury yields climbing to cycle highs, also acted as a drag on banks; as expressed before, elevated yields are bank-positive. The confusion dissipates though in light of the fact that month-to-date, the S&P 500 Banks index is comfortably outperforming the overall S&P.
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