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 Goldman Sachs Group Inc, Bank of America Corp, Wells Fargo & Co,
Citigroup and JPMorgan Chase & Co - the five biggest U.S. banks by
market cap - are due to report results as the sector has trailed the
market in recent weeks and earnings estimates have fallen.
Financial companies are expected to show earnings growth of 8.4
percent, behind only telecoms and consumer discretionary companies
in expected growth for the quarter. However, that growth is down
from the 14.8 percent expected at the start of the quarter, and down
by half from the 17.8 percent growth expected at the start of the
year.
In the last 30 days, banks have seen their estimates steadily
lowered, with Goldman the biggest victim. Its estimates for the
quarter are down by 25 percent in that time period.
While the broader market has recovered from losses sustained in the
latter half of August, banks have struggled. The Fed's decision not
to raise rates, coupled with economic concerns and worries about
trading revenues, have tethered shares of the big banks.
The S&P 500 financials index has underperformed the broader market,
and has slumped 5.6 percent this year so far, compared with a 2.2
percent decline in the S&P 500. In the last month, the S&P 500 has
gained 2.2 percent, but the five biggest financial institutions are
all flat or down.
The banks give an idea of the activity of mid- and small-sized
business, which can help gauge the health of the broader economy,
according to Kim Forrest, senior equity research analyst at Fort
Pitt Capital Group in Pittsburgh.
"Some people are saying we are in a recession, other people are
saying it’s that summertime lull and I don’t think anyone knows,"
said Forrest.
The U.S. Federal Reserve's decision not to raise interest rates in
September is also likely to impact trading desks at the banks, which
could weigh on their bottom line, as well as desks that did not
anticipate the strong rebound in equities.
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The market expects bigger swings than usual this quarter. While the
typical bank share move after earnings is about 2 percent, swings
one-and-a-half times that are expected this earnings season.
"Participants are bracing for a bit more volatility than in past
quarters," said Fred Ruffy, strategist at options analytics firm
Trade Alert in New York.
The S&P 500 has gained in seven of the past eight sessions and was
on track for its biggest weekly percentage gain of the year.
Investors will also look next week to data on inflation - one of the
conditions the Fed accounts for when deciding on interest rates -
with the release of the producer and consumer price indexes. The
week also includes retail sales and consumer sentiment data.
Overall, third-quarter earnings for S&P 500 companies are expected
to decline 4.5 percent, according to Thomson Reuters data. That
compares with just a 0.3 percent decline that had been forecast in
July.
(Additional reporting by Saqib Ahmed and Rodrigo Campos; Editing by
Nick Zieminski)
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