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
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
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.
Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.
Risk Warning: Trading Forex and CFDs on margin carries a high level of risk and may not be suitable for all investors. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Prior to trading, you should take into consideration your level of experience and financial situation. TeleTrade strives to provide you with all the necessary information and protective measures, but, if the risks seem still unclear to you, please seek independent advice.
© 2011-2020 TeleTrade-DJ International Consulting Ltd
TeleTrade-DJ International Consulting Ltd is registered as a Cyprus Investment Firm (CIF) under registration number HE272810 and is licensed by the Cyprus Securities and Exchange Commission (CySEC) under license number 158/11.
The company operates in accordance with Markets in Financial Instruments Directive (MiFID).
The content on this website is for information purposes only. All the services and information provided have been obtained from sources deemed to be reliable. TeleTrade-DJ International Consulting Ltd ("TeleTrade") and/or any third-party information providers provide the services and information without warranty of any kind. By using this information and services you agree that under no circumstances shall TeleTrade have any liability to any person or entity for any loss or damage in whole or part caused by reliance on such information and services.
TeleTrade cooperates exclusively with regulated financial institutions for the safekeeping of clients' funds. Please see the entire list of banks and payment service providers entrusted with the handling of clients' funds.
TeleTrade-DJ International Consulting Ltd currently provides its services on a cross-border basis, within EEA states (except Belgium) under the MiFID passporting regime, and in selected 3rd countries. TeleTrade does not provide its services to residents or nationals of the USA.