Now that the second quarter of the earnings season is in full swing in the coming weeks, the country's largest banks are showing whether their earnings have been affected by signs of economic weakness, trade war escalation and falling interest rates .
Investor sentiment towards bank shares was not as positive as for other sectors of the market. It has fallen more than 7% in the last 12 months, compared to an 8% jump in it, despite the fact that bank incomes have generally been healthy
Investors fear that the US economy is at a late stage of a bull cycle and may be in the midst of a recession. That would affect banks in countless ways, from slower loans to higher default values.
In the coming week, investors will look for outage spots when the largest US banks start reporting. In this domain we focus on the following two big names for possible buying opportunities after their revenue reports next week:
1. Citigroup
If you want to visit this sector again, we think that Citigroup (NYSE 🙂 is one of the best bank shares that you can own now. We derive our optimism from the ongoing cost-saving measures taken by the lender over the past decade and the rebalancing of its portfolio.
These efforts are starting to pay off and the bank sees improvements in both sales and profits. After a sharp correction in the last quarter of 2018, Citigroup shares are back in the game, with 38% this year, more than double the gains of the KBW Bank index that rose 15% over the same period. The stock rose by nearly 1% on Thursday and closed at $ 71.61.
Citigroup, which is projected to earn $ 1.85 earnings per share on a revenue of $ 18.71 billion on Monday according to analysts' consensus estimates
A possible risk to banks' results in the past quarter is due to lower trading volumes. Citigroup warned at the end of May that trade revenues had fallen in the second quarter as a result of a nascent trade war between the United States and China, the planned British exit from the European Union and the escalation of tension between the US and Iran
Even with this weak macroeconomic background, Citigroup is one banking company that could outperform the others because of the company's ongoing efforts to reduce costs over the past decade. These efforts are reflected in the lender's rapidly improving efficiency ratio or costs as a percentage of revenue. This yardstick has risen by less than 60% in the last four years, making Citi the only major bank capable of maintaining such a winning streak.
2. JPMorgan Chase & Co.
Wall Street superpower commercial and investment bank, JPMorgan Chase & Co. (NYSE 🙂 is another stock that needs to be closely monitored when it appears on Tuesday. Analysts expect an average profit of $ 2.53 on the sale of $ 29.02 billion.
Driven by strong credit growth and robust activities in the lender's investment banking department, 2018 was a great year for JPMorgan. The bank recorded a record net income, even when you eliminate the benefits of US tax reforms.
The story was also quite encouraging in the first quarter, in particular the crucial net interest income figure, which measures the spread between the income from customers' loan payments and what the depositors pay. The income of that division jumped to a record $ 14.5 billion in the first quarter.
This earnings momentum has supported JPM shares well this year. Trading at $ 114.10 at the close of yesterday, they have risen nearly 18% since the start of 2019, against the 15% gain in the reference index.
Although a low interest rate environment may not help the lender in the second half of this year in the future, this may encourage more loan expansion, allowing JPM to increase its lending activity. Jamie Dimon, CEO of JPM, said this early this year when he told analysts that the short-term outlook for credit is relatively bright
Bottom Line
Both Citi and JPMorgan shares are trading close to their 52-week highs after a powerful rally this year. It may not be the perfect time to buy these stocks at these levels, but next week's earnings reports could provide good access to long-term investors if their numbers of Wall Street disappoint. Both names are good buy-on-dip candidates.
