By Steve Gelsi
The disconnect between healthy business performance and ailing share prices in 2022 will likely continue for megabanks through this year’s second-quarter earnings season, amid bear market conditions for stocks and growing recession fears.
Investors will likely be on the lookout for potential headwinds in loan growth and credit quality in the banking industry as JPMorgan Chase & Co. /zigman2/quotes/205971034/composite JPM -1.13% and Morgan Stanley /zigman2/quotes/209104354/composite MS -2.20% are slated to report earnings on Thursday, July 14, as the first two of the big-six U.S. banks.
Citigroup Inc. /zigman2/quotes/207741460/composite C -1.28% and Wells Fargo & Co. /zigman2/quotes/203790192/composite WFC -2.52% both report earnings on Friday, July 15, while Bank of America Corp. /zigman2/quotes/200894270/composite BAC -1.59% and Goldman Sachs Group Inc. /zigman2/quotes/209237603/composite GS -0.99% weigh in on July 18.
Bank stocks have been pulled lower this year by forward-looking recession woes, even as the current economic conditions remain relatively strong. The selloff in stock prices may appear to make sense, since stock market investors typically look ahead and earnings reports mostly provide a look back.
Some of the economic pessimism in the stock market came from the banks themselves, with JPMorgan Chase CEO Jamie Dimon warning of a hurricane coming in the economy in an appearance at the Bernstein Strategic Decisions Conference.
The Financial Select SPDR ETF /zigman2/quotes/209660484/composite XLF -0.62% ended the first half with a loss of 19.5%. The S&P 500 index /zigman2/quotes/210599714/realtime SPX -0.16% dropped 20.6% in its worst first half since 1970. The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.24% retreated by 15.3% year to date through June 30.
See Market Snapshot: Wall Street on course to continue its rotten run, with ISM manufacturing data in focus
Bank of America’s stock ended the first half of 2022 with a loss of 30.0% as the weakest performer among the big six banks, while JPMorgan Chase shares have dropped 28.9%, Citigroup by 23.8%, and Wells Fargo by 18.4%.
Morgan Stanley stock had fallen by 22.5% since the start of 2022 and Goldman Sachs was off 22.4%.
Putting a positive spin on weak stock performances, Deutsche Bank analyst Matt O’Connor said bank stocks are already pricing in a 65% to 75% chance of a recession, which suggests “good upside potential” in 2023.
“Despite anticipating solid/strong 2Q results and likely upgrades to 2H outlooks (driven by higher net interest income), we don’t expect recession fears to abate,” O’Connor said.
During the second quarter, the economy continued cooling off, with banks facing a drop in mortgage lending as refinancings and home purchases fell back in the face of higher interest rates. Some jobs have been shed at JPMorgan and elsewhere as a result.
Banks have also absorbed a pause in the market for initial public offerings .
But analysts saw little reason to reduce megabank earnings forecasts by drastic margins since the end of the first quarter. Out of the six bank giants, analysts cut estimates on five, and raised estimates on JPMorgan Chase.
Analysts ease back on profit expectations
JPMorgan Chase is on deck to report second-quarter earnings of $2.89 a share on revenue of $31.81 billion, according to FactSet estimates. Analysts have hiked their profit estimate for the bank from a mean of $2.79 a share as of March 31.
Analysts expect Morgan Stanley to report earnings of $1.56 a share and revenue of $13.39 billion. The median estimate for Morgan Stanley was $1.81 as of March 31, according to FactSet data.
Add to watchlist
JPM
Add to watchlist
WFC
Add to watchlist
BAC
Add to watchlist
DJIA
