Major US Banks Commence Unofficial Q3 Earnings Reporting

Banks will be among the first major corporations to announce Q3 financials as the reporting season commences amid speculation earnings may cool.

Starting With the Best

The third quarter of the financial reporting season unofficially begins on Friday, with reports from major banks in the US. Analyst perception is that banking stocks will perform better in the current environment of decreasing interest rates as the yield curve becomes less inverted, implying the sector's outperformance would likely be matched in their earnings reports. The largest banks will also face additional scrutiny as investors seek more insight into the real state of the economy, consumer behaviour, and appetite for credit, which will help fuel earnings for the rest of the year.

Analysts are less optimistic about Q3 earnings following erratic job creation numbers over the last three months. Persistent inflation, including wage pressure, coupled with expectations of slow sales growth, would likely put margin pressure on companies and weigh on earnings growth. Despite earnings season being a time of market growth, as results outperform analyst estimates, a key factor this time around will be the results of the US election. It could provide additional uncertainty and leave traders less willing to buy into the market until later in November.​

The First Movers

JPMorgan

As the largest bank in America, JPMorgan will be scrutinised, and in particular, comments from its outspoken CEO Jamie Dimon, who recently said geopolitics pose the biggest risk to the economy. Analysts believe investment banking income will be lower, which aligns with a theme that may affect other banks' earnings. EPS is forecast to decline 7.4% year-on-year (YOY) to $4.01, despite revenue rising 5.1% to $41.7 billion. The bank is also expected to maintain substantial provisions due to economic uncertainty.

Wells Fargo

As the largest US consumer bank and mortgage lender, Wells Fargo is projected to see earnings fall despite lower interest rates as the Fed's large rate cut happened late in the quarter. Therefore, investors may focus more on the outlook as mortgage interest rates are expected to trend downward. Wells Fargo is forecast to see reductions in both revenue and earnings, with revenue declining 2.3% to $20.4 billion and EPS 8.6% to $1.27.​

Wells Fargo Ends C&H Pattern

Wells Fargo's decline to $50 may have marked a short-term bottom that may have completed a 'cup and handle' (C&H) pattern. Breaking above the past high of $62 could provide positive momentum to push prices beyond the resistance levels of $59 and $60. Projections suggest the share price may reach around $71, assuming a shorter-term broadening wedge pattern has completed that handle. However, falling below $55 or breaking the $50 double-bottom support could allow the share price to drop to around $47 or the high activity region of $43.​

Source: SpreadEx / Wells Fargo

Key Takeaways

Major US banks will kick off the Q3 earnings season on Friday, with JPMorgan and Wells Fargo among the first to announce results. Analysts expect banking sector performance to improve from decreasing interest rates but have a more cautious outlook for the broader market. JPMorgan's revenue is forecast to rise by 5.1%, but EPS is forecast to fall by 7.4% due to lower investment banking fees. Wells Fargo is projected to see reductions in both revenue and earnings as the benefit of interest rate cuts was minimal for the quarter.