With the second-quarter earnings season in full swing in the coming weeks, the largest US banks are the first to be scrutinized.
The income of large banks is considered to be a good barometer for the economy, because their income largely depends on the direction of interest rates, business investment and loans to private borrowers. The Federal Reserve has had twice since July to absorb the negative impact of the US trade war with China.
With reference to this headwind, Citigroup Inc (NYSE: ) ,, JPMorgan Chase & Co (NYSE 🙂 and Wells Fargo & Company (19459005] & Company (NYSE 🙂 signaled lower net interest income at the Barclays conference in September.
At large US banks, average earnings per share per share of analysts have fallen by 9% since the beginning of the year, according to Autonomous Research, quoted by the Wall Street Journal.
Investor sentiment towards bank shares also reflects similar uncertainty. Shares of financial companies have risen by around 4.6% in the past year, compared to a 7.3% increase in the broader index.
In the coming week, investors will look for problems because the largest US banks are starting to report. In this domain we focus on the following two big names for possible buying opportunities after their income reports:
1. Citigroup
Citigroup is one of our favorite stocks to consider if you plan to have any exposure to the banking sector. The lender has consistently demonstrated that it can keep costs down and can quickly adapt to changing market conditions.
When the lender reported this in July, it cut costs deeper than analysts expected, while the consumer division reported the strongest second quarter since 2013. Costs fell by 2%, also lower than what analysts had predicted .
This strength is reflected in Citigroup (NYSE 🙂 shares, which rose around 35% this year – more than double the Index's earnings, which rose 15% over the same period. The stock rose by more than 2% to $ 70.10 on Friday.
The lender is scheduled to report Tuesday and is expected to post a $ 1.95 profit on sales of $ 18.52 billion, according to analysts' consensus estimates.
2. JPMorgan Chase & Co.
The mighty commercial and investment bank of Wall Street JPMorgan Chase & Co. is another stock to keep a close eye on when it is released on Tuesday. Analysts expect on average $ 2.45 a profit on sales of $ 28.46 billion.
Driven by strong loan growth and robust activities in the lender's flagship, JPMorgan was a great year last year. The bank recorded a record net income even when you take advantage of the benefits of tax reforms in the US
The story is also quite encouraging in the first two quarters of this year. In the second quarter, JPM's profit increased by 16%, with the strong performance of the consumer activities mainly offsetting a slowdown in the other units of the bank.
This earnings momentum has well supported JPM shares this year. Trading at $ 116.14 at the end of Friday, the stock has risen nearly 20% this year, against the gain of 15% in the reference index.
Chief Executive James Dimon told analysts in the last conference call that the Fed's interest rate cuts would not affect the bank's expansion plans, including branch openings and technology spending – two areas that are likely to keep the lender's spending higher.
Bottom Line
Due to their strong global presence, both Citi and JPMorgan are well positioned to benefit if the US and China are successful in ending their trade war and improving global growth prospects. Both shares are good buy-on-the-dip candidates, even if their earnings disappoint tomorrow and cause weakness in the short term.
