Financial services companies — including Wells Fargo (WFC), JPMorgan (JPM), Citigroup (C) and First Republic Bank (FRC) — start reporting their second-quarter earnings Friday.
More firms will share their latest results Monday, when Charles Schwab (SCHW) and BlackRock report their second-quarter performance. On Tuesday, Bank of America (BAC), TD Ameritrade (AMTD) and Goldman Sachs (GS) issue their results, followed by Morgan Stanley (MS) on Wednesday.
Analysts are upbeat but not exuberant in terms of their expectations for the overall earnings season.
“Earnings season is underway … and may be another good one, with double-digit S&P 500 Index earnings growth possible. But getting to double digits will be tougher than it was in the first quarter when S&P 500 earnings increased more than 15% year over year,” explained Burt White, chief investment officer of LPL Financial, in a report this week.
According to White, Thomson’s consensus for Q2 average EPS growth is 8%. “Given the typical 3–4% upside to estimates, growth in the 11–12% range is a reasonable expectation,” the CIO said.
On Friday, Wells Fargo is expected to report flat earnings of $1.01 per share, JPMorgan’s earnings could be up $0.04 year over year to $1.59, and Citi’s results should be down $0.03 at $1.21, according to industry estimates.
Why the optimism?
First is economic growth, which should come in at 3% for GDP on an annualized basis in the second quarter, up from the 1.4% pace in the first quarter “and providing a solid backdrop for steady revenue and earnings gains (consensus is calling for 4.6% revenue growth in the second quarter),” White explains.
In fact, surveys from the Institute for Supply Management in Q2 are “supportive,” he says.
“Wage growth has risen at a moderate roughly 2.5% pace based on national income data, helping corporate America protect relatively high profit margins. Meanwhile, data overseas has generally reflected improving economic conditions, albeit gradually, in Europe, Japan, and the emerging market economies, a positive for U.S. multinationals,” White pointed out.
He also says earnings estimates have held up “relatively well” over the past few months.
In Q2, the current EPS estimated growth rate of 8% is just 2% below the estimate of April 1 — compared with a usual 3–4% decline.
“Based on FactSet analysis, this below-average decline is the best in three years. Estimates for the second half of 2017 fell by less than 1% during the second quarter, an encouraging result even though these estimates may still come down a bit more, as they typically do,” the CIO explained.
Many market-watchers are asking if any pro-growth policies advocated by the Trump administration will be put in place before year-end. On this issue, White is cautious.