American Q3 earnings season preview: Banks and beyond

By Glenn Dyer | More Articles by Glenn Dyer

America's third-quarter earnings season kicks off this week, and by week's end, there should be more than a hint of what to expect in six weeks when reporting wraps up.

With the higher path for bond yields now seeming more acceptable to most investors (after Friday's performance), the earnings season will influence how investors perceive stock prices for the rest of this year.

The S&P 500 is still up 12% for the year after Friday's 1.2% rise, but it was up more than 16% mid-year.

The six major banks report Friday and early next week, but there will also be reports from consumer products giant Procter and Gamble, Pepsi, Domino's Pizza, Delta Airlines, and BlackRock, the giant fund manager.

While quarterly reports from big tech companies like Netflix, Amazon, Apple, Meta, Alphabet, and Tesla will be closely watched by investors and analysts, the results from the big six banks will set the scene and, if good enough, reassure people that the crisis in the spring with several bank collapses has eased.

That reassurance will have more impact than the size of the revenue and earnings reported by the banks.

JPMorgan Chase & Co. (JPM), Wells Fargo & Co. (WFC), and Citigroup (C) provide their quarterly updates on Friday (the 13th!), followed by Bank of America Corp. (BAC) and Goldman Sachs (GS) on October 17 and Morgan Stanley (MS) on October 18.

Of these six, Wells Fargo and JPMorgan Chase have seen analysts' earnings estimates increase during the quarter, according to FactSet data. Expectations for Bank of America have remained about flat, and estimates have fallen for Citigroup, Goldman Sachs, and Morgan Stanley.

US banks – large, medium, and small – face a number of headwinds, starting with cost increases, higher capital requirements to meet new regulatory guidelines, and the impact of higher bond yields on balance sheet values for debt and other securities on bank balance sheets.

Some analysts see banks facing tightening net interest margins while they are also dealing with continuing worries about commercial real estate values as workers stay at home and demand for workspace dwindles.

Continuing concerns about the health of the economy this year and next are causing banks to add to their reserves, which reduces earnings.

Citibank's stock fell the most in the third quarter, with a loss of 10.7%, but its earnings target among Wall Street analysts has only fallen by 6%.

As the largest US bank by market value, JPMorgan's stock held up well in the third quarter, with a slim loss of 0.3% between July 1 and September 30, and analysts see a solid rise in earnings of nearly 10%.

Wells Fargo stock fell 4.3% during the third quarter, and analysts see a tiny improvement in quarterly earnings. Bank of America shares dropped 4.6% in the quarter. Morgan Stanley's share price fell 4.4% in the third quarter, and analyst earnings forecasts didn't see any significant drops for either.

Then there are the continuing echoes of the spring regional bank crisis, with reserves and bond yields still a concern for many investors.

Citigroup's figures will attract a lot of attention. The performance of CEO Jane Fraser has come under scrutiny recently as investors wonder about her restructuring plan for the bank, as it sheds its overseas consumer banking units and cuts senior executives.

The bank is not likely to share any headcount reduction numbers until early next year, but it will likely provide some insight into the effort and how its businesses are faring in the increasingly choppy financial conditions of the past few months.

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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