S&P 500, Dow Rebound as Q3 Earnings Season Kicks off with Banks

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Talking Points:

  • In general, bank stocks gapped higher at the open as they looked to regain ground lost in the week
  • Many of the banks see continued growth in the near future, despite October’s tumultuous start
  • Earnings season continues next week with BAC, MS, GS, and FANG’s leading component

Third quarter earnings kicked off in earnest this week with big banks being some of the first corporations to deliver. JPMorgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC) were among them. After two brutal trading days in which the SPDR XLF Financial Select Selector ETF dropped 6%, it gapped higher Friday. Despite the generally positive earnings, XLF traded lower as Friday pressed on and investors further digested the reports and the broader indices surrendered some gains.

SPDR XLF Financial Select Selector ETF Hourly, October

S&P 500, Dow Rebound as Q3 Earnings Season Kicks off with Banks

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JPMorgan Chase

JPMorgan offered the most impressive performance, surpassing all expectations. Earnings per share jumped to $2.34 versus the expected $2.25. Revenue came in at $27.8 billion, topping the $27.5 billion expectation. The figures resulted in a 33% increase in EPS and a 5% increase in revenue for the nation’s largest bank by assets.

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Executives highlighted rising interest rates, a robust US economy, and rising consumer credit as contributors to the stellar quarter. Moving forward, CEO Jamie Dimon saw reason for continued US economic strength and remained optimistic despite October’s volatility. Shares of JPM were part of the broader market rally, but likely enjoyed an extra bump because of the positive results.

Citigroup

Citigroup delivered mixed results for the third quarter with an 18% increase in EPS to $1.73 versus 1.67 expected. Revenue missed forecasts, reading $18.39 billion versus $18.43 expected. Despite the mixed results, shares of Citigroup traded firmly in the green Friday. As of the morning hours, they traded up 3.7% around $71.

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Wells Fargo

Despite various headwinds and scandals that have recently plagued WFC, earnings were mixed as EPS beat and revenue missed slightly. EPS climbed 12.5% from last quarter to $1.17. Revenue dipped 0.1% to $21.9 billion. In a statement, CFO John Shrewsberry highlighted increased debit and credit card usage, higher year-over-year loan originations in auto, small business, home equity, and personal loans as some of the strong performers of the quarter.

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Broader Takeaways

In general, the performance of the big banks was encouraging. The forecasted data for upcoming quarters highlights the position the financial institutions find themselves in. A strong economy coupled with rising interest rates provides a friendly landscape for lucrative loans. Should interest rates rise too much, margins drop and forecasts would show the signs. The current and upcoming climate is arguably a goldilocks scenario.

Bank earnings are often used as bellwethers for upcoming earnings in the broader market. That said, a string of reports near forecasted levels are a promising sign despite the volatility US equities have experienced this week. Next week Bank of America (BAC), Morgan Stanley (MS), and Goldman Sachs (GS) are due to report.

What is the NASDAQ FANG Group and Why Does it Matter?

The first of the FANG members, Netflix (NFLX) is also due. FANG will similarly be looked to gauge the quarter. The four high-growth tech stocks have been a source of robust growth in the bull-run we find ourselves in. Should they show signs of slowing, it will certainly weigh on sentiment.

–Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

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