As usual America’s biggest banks again kick off another earnings season this week and will set the tone for the rest of the S&P 500 to report for the three months to September 30.
JPMorgan Chase & Co, America’s largest lender starts with its report on Wednesday. Citigroup and Morgan Stanley follow on Thursday, along with Bank of America Corp as well as Wells Fargo.
Goldman Sachs will cap the week with its figures on Friday.
Overall, third-quarter earnings are expected to have risen 27.6% year over year, according to forecasts from financial data provider, FactSet.
That would be the third-highest growth rate since 2010.
FactSet figures shows that 47 S&P 500 companies have issued negative earnings guidance for the third quarter, and 56 companies have issued positive outlooks.
Rising energy costs will be a key topic as companies report third-quarter results.
Oil prices have surged more than 25% since late August, with Brent topping $US82 a barrel and US crude $US80 a barrel and hitting seven-year highs.
Natural gas prices in Europe, Asia and China have rocketed and US gas prices hit 13-year highs during the week before easing. Coal prices continue to soar.
Oil prices have a “roughly neutral” effect on overall corporate earnings, according to Goldman Sachs strategists, with every 10% increase in Brent prices boosting S&P 500 earnings per share by 0.3%.
There is a knock-on effect through other companies but economists point out that energy takes a much smaller share of US consumer income than it did a decade ago, so the impact on household spending is not as noticeable.
Of the big banks, US analysts think Well Fargo will do the best wit a 100%-plus jump on the third quarter of 2020 that was depressed by unusual expenses.
JPMorgan is forecast to report a small fall in earnings, Citi and Morgan Stanley are projected to reveal a rise of around 15% each (according to consensus forecasts) and Goldman could report a flat result.
Bank of America could report a 30-40% jump in earnings for the quarter.
Analysts say the biggest influence on the results will be the absence of pandemic-related accounting adjustments that had doubled their earnings earlier this year and big profits in the investment banking divisions from the continuing boom in takeovers and IPOs.
Stock buybacks will provide a lift to earnings-per-share in the quarter and coming periods.
Investment banking divisions of the big banks should deliver spectacular gains thanks to the continuing boom in takeovers, while a fall in fixed-income trading revenue will be partially offset by strong equity volumes.
Analysts say they will be focusing on whether net interest revenue, which generates more than half of banking industry revenue and has been stagnant in recent quarters, is set to rise in coming months on higher interest rates and new loan demand from businesses and consumers.
Analysts will also look for signs that commercial and industrial borrowing has stopped falling.
Unlike earlier this year, banks will benefit only marginally this quarter from releasing reserves for pandemic-related loan losses that did not happen.
Banks have already released 60% of a combined $US50 billion of reserves (boosting earnings in the first June half year) they had put aside and will likely release only $US5 billion more this quarter, according to analysts.
A small number of other companies are down to report this week – Delta Airlines, Alcoa, JB Hunt, Honeywell, Walgreens Boots and Blackrock.
