Market Overview

The mellow season of the U.S. corporate earnings in October starts mostly from the banking sector. Some of the largest banks will release their Q3 reports on Tuesday, just after Columbus Day. Meanwhile, a growing number of American cities, states and even universities are replacing Columbus Day with Indigenous Peoples’ Day, also known as Native American Day. Several Columbus statues came down this summer amid many days of protests caused by the death of George Floyd at the hands of Minneapolis police in May. 

By the way, the sitting U.S. President Donald Trump called on American citizens "to observe this day with appropriate ceremonies and activities" and directed that the American flag be displayed on all public buildings on Monday. Personally, he is against the movement to recognise the day as Indigenous Peoples’ Day. After belief conflicts, and after all the fighting over monuments, it is sometimes difficult now to understand who is an American hero, and who is a symbol of hate. At least financial markets have a hope that against all political and pre-election backgrounds, at least the leading banks could show some signs of stability to remain the heroes during the global post-crisis recovery. The next few days may show whether this is the case. 

JPMorgan Chase & Co., which is ranked by S&P Global as the largest bank in the United States and the seventh largest bank in the world by total assets, and the most valuable bank of the world by market capitalization, is going to report its financial results before the opening bell on Tuesday. JPMorgan's oldest predecessor institution, the Bank of the Manhattan Company, was founded on September 1, 1799, by Aaron Burr, who was one of the Founding Fathers of the United States. He served as a vice president during the first term of Thomas Jefferson, who was the principal author of the Declaration of Independence. However, the role of Aaron Burr was overshadowed after he killed fellow Founding Father Alexander Hamilton in a duel, and again, when some charges of treason were brought against him in 1807. 

As for JPMorgan's share price, it has heroically held above the $100 level in the final days before the report, which is as much as 30% above the viral bottom of March, but 28% below last year's highs. The Wall Street consensus, according to a Reuters poll, is expecting $2.23 in earnings per share (EPS) on $28.3 billion in revenue for an expected year-on-year growth of -17% and -4.1% respectively. That is not bad in terms of EPS but weaker in terms of revenue if compared with the previous five quarters (see Pic 1).

Pic 1. JP Morgan's Financial Results on Revenue and EPS

Source: Investing.com

According to a research made by Eikon from Refinitive, analysts expect deep decline in EPS for most of the S&P 500 sectors, and the average decline for the financial sector is at the -19.1% level (see Pic 2), so JPMorgan's results are estimated to be a little better than the other banks that are traded in the U.S. market.

Pic 2. The Declines Expected in Q3 2020 for Different Economy Sectors

However, the experience of the second quarter showed that the actual results for most large companies, and banks too, were better than the relatively poor expectations. So, today the S&P500 broad market index continues to rise, keeping a positive mood and reaching the psychological landmark of 3500 points. This creates a good foundation for further growth, for example, for some companies in the retail sector, or for big techs, but the dynamics of movements this week may be significantly affected by bank earnings. 

A day after JP Morgan's earnings, the Bank of America, which is a large Warren Buffett's holding now with a dividend yield of 2.8%, and Wells Fargo are going to report on Wednesday. The last one has been a source of great worry for the markets since last year, with many rumours of even more bad loans in its portfolio. 

Goldman Sachs also reports on Wednesday, and its shares show the most encouraging dynamics so far among all the mentioned entities from the banking environment. Goldman Sachs shares are almost 60% above the bottom of March, and just 17% below the peaks of January. Its revenue data of $13.3 billion for Q2 2020 significantly beat the average market expectations of less than $10 billion. Overall, the reality has always been better than analysts' expectations for Goldman Sachs over the past five quarters (see Pic 3), which gives a moderate optimism before the Q3 statistics too.

Pic 3. Goldman Sachs' Financial Results on Revenue and EPS

Source: Investing.com

While bank reports are going to be released, the relief stimulus saga in the U.S. Congress may even take a back seat this week, as U.S. Treasury Secretary Steve Mnuchin and White House Chief of Staff Mark Meadows called on Congress on Sunday to pass a coronavirus aid bill using leftover funds at least from the small business loan program. The broad negotiations on a bigger package face resistance from both sides everyday. “The all or nothing approach is an unacceptable response to the American people,” Mnuchin and Meadows wrote to the Congress. U.S. President Donald Trump offered a $1.8 trillion relief package on Friday in talks with the Democratic Congress leader Nancy Pelosi. It moves much closer to Pelosi’s $2.2 trillion proposal, but the devil is usually in the details as usual. So, it's still not clear if the Republican and Democratic sides will be able to find any compromise before the November 3 elections.

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