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JPMorgan, Bank of America, and Goldman Sachs are part of Zacks Earnings Preview
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For Immediate Release
Chicago, IL – April 11, 2022 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes JPMorgan (JPM - Free Report) , Bank of America (BAC - Free Report) , and Goldman Sachs (GS - Free Report) .
Can Bank Stocks Get Their Mojo Back with Q1 Results?
JPMorgan and its peers such as Bank of America and Goldman Sachs that are on deck to report Q1 results this week enjoyed a great run last year. The Zacks Major Banks industry, which includes JPMorgan and the other money-center operators, was up +32% in 2021, better than JPMorgan's +24.6% gain and the S&P 500 index's +27.5%.
You can see in the chart that while JPM shares were second from the bottom in terms of performance last year, they still did better than the Zacks Tech sector.
This performance momentum made perfect sense. Yes, there were supply-chain bottlenecks and creeping worries about inflation, but all of that was due to a red-hot economy that drove trading and investment banking volumes into record territory and raised optimism about loan demand.
Most importantly, interest rates were expected to go up, which benefited bank stocks directly through improved margins. Indirectly, the coming Fed tightening cycle benefited bank stocks by undermining the attractiveness of high-multiple, long-duration Tech stocks that are generally seen as less attractive in a rising interest rate environment.
What Went Wrong for Bank Stocks?
This performance picture has changed materially in the year-to-date period, with the bank stocks lagging the broader market meaningfully.
We have moved into the 'post-transitory' phase with respect to the Fed's inflation outlook that has caused long-term interest rates to spike. This should have been a catalyst for bank stocks had short-term interest rates also not spiked in parallel, causing the yield curve to flatten and actually momentarily invert.
I won't repeat why yield curve inversions are scary things and why it's useful for all of us to keep a close watch on the risk of such a development. But I do want to point out here that I am sympathetic to the view that the current yield curve and its signaling power about future economic growth may not be fully comparable to historical periods as a result of the Fed's extraordinary QE policies since the global financial crisis.
Irrespective of this plausible but otherwise minority view of the yield inversion, they are a net negative for the growth outlook. This, coupled with elevated oil prices and the geopolitical uncertainty resulting from the Ukraine war appear to be weighing on bank stocks lately.
As is typically the case, the sentiment shift on banks has likely overshot to the downside, as the economy still remains strong even as recessionary risks have increased from very depressed levels.
The group's near-term profitability is undoubtedly subdued, with heightened uncertainty weighing on investment banking deal flow (M&A and underwriting) and trading volumes facing very tough comparisons. But management teams are indicating that deal pipelines remain robust, suggesting that volumes will pick up promptly as the macro environment eases.
We see the bank stocks as attractively positioned currently on valuation grounds as well.
As you can see, the group is currently trading at 55% of the S&P 500 multiple, which compares to a 5-year high of 60%, low of 48% and median of 60%.
Bank Earnings Expectations
For the Zacks Major Banks industry, which includes these major banks and accounts for roughly 45% of the Finance sector's earnings, 2022 Q1 earnings are expected to decline -36.2% on -1.4% lower revenues. This would follow +8.8% earnings growth on +6% higher revenues in 2021 Q4.
For the Finance sector as a whole, total Q1 earnings are expected to decline -19.2% on +1.9% higher revenues.
It will be interesting to see management's commentary about trends in the core banking business, particularly about loan demand. The group's Q1 results are expected to show accelerating loan growth, but the worry will be with respect to sustainability given the aforementioned yield curve flattening. Most of the big banks don't have that much exposure to Russia, though Citigroup does. Management's outlook for the yield curve will also be informative.
The 2022 Q1 Earnings Season Scorecard
The Q1 earnings season will really get going with this week's big banks reporting March-quarter results, but the early reports have come out already.
As we have pointed out before, not all companies have fiscal periods that correspond with calendar quarters. Quarterly reports in recent days from companies with fiscal quarters ending February will form part of the Q1 tally. We have already seen such results from 20 S&P 500 members, including FedEx, Nike, Oracle and others.
For the 20 index members that have reported Q1 results already, total earnings are up +20.7% from the same period last year on +12.3% higher revenues, with 80% beating EPS estimates and 85% beating revenue estimates.
Not to make too big of a deal out of these very early results, but the comparison charts below put the 2022 Q1 earnings and revenue growth rates for these 20 index members in the context of what we had seen from the same group of companies in other recent periods.
Looking at Q1 as a whole, with actuals for these 20 index members and estimates for the still-to-come companies, total earnings are expected to be up +3.5% on +10% higher revenues.
Excluding the -19.2% decline in Finance sector earnings, the growth rate for the index improves to +10.5%. On the other hand, the Energy sector has a very robust earnings profile at present, with the sector expected to bring in +204.1% more earnings than the year-earlier period on +36.8% higher revenues. Excluding the hefty Energy sector contribution, earnings for the remainder of the index would be down -1.8% on +8% higher revenues.
For a detailed look at the overall earnings picture, including expectations for the coming periods, please check out our weekly Earnings Trends report >>>>Are Earnings Estimates Going Down?
Why Haven't You Looked at Zacks' Top Stocks?
Our 5 best-performing strategies have blown away the S&P's impressive +28.8% gain in 2021. Amazingly, they soared +40.3%, +48.2%, +67.6%, +94.4%, and +95.3%. Today you can access their live picks without cost or obligation.
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.
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JPMorgan, Bank of America, and Goldman Sachs are part of Zacks Earnings Preview
For Immediate Release
Chicago, IL – April 11, 2022 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes JPMorgan (JPM - Free Report) , Bank of America (BAC - Free Report) , and Goldman Sachs (GS - Free Report) .
Can Bank Stocks Get Their Mojo Back with Q1 Results?
JPMorgan and its peers such as Bank of America and Goldman Sachs that are on deck to report Q1 results this week enjoyed a great run last year. The Zacks Major Banks industry, which includes JPMorgan and the other money-center operators, was up +32% in 2021, better than JPMorgan's +24.6% gain and the S&P 500 index's +27.5%.
You can see in the chart that while JPM shares were second from the bottom in terms of performance last year, they still did better than the Zacks Tech sector.
This performance momentum made perfect sense. Yes, there were supply-chain bottlenecks and creeping worries about inflation, but all of that was due to a red-hot economy that drove trading and investment banking volumes into record territory and raised optimism about loan demand.
Most importantly, interest rates were expected to go up, which benefited bank stocks directly through improved margins. Indirectly, the coming Fed tightening cycle benefited bank stocks by undermining the attractiveness of high-multiple, long-duration Tech stocks that are generally seen as less attractive in a rising interest rate environment.
What Went Wrong for Bank Stocks?
This performance picture has changed materially in the year-to-date period, with the bank stocks lagging the broader market meaningfully.
We have moved into the 'post-transitory' phase with respect to the Fed's inflation outlook that has caused long-term interest rates to spike. This should have been a catalyst for bank stocks had short-term interest rates also not spiked in parallel, causing the yield curve to flatten and actually momentarily invert.
I won't repeat why yield curve inversions are scary things and why it's useful for all of us to keep a close watch on the risk of such a development. But I do want to point out here that I am sympathetic to the view that the current yield curve and its signaling power about future economic growth may not be fully comparable to historical periods as a result of the Fed's extraordinary QE policies since the global financial crisis.
Irrespective of this plausible but otherwise minority view of the yield inversion, they are a net negative for the growth outlook. This, coupled with elevated oil prices and the geopolitical uncertainty resulting from the Ukraine war appear to be weighing on bank stocks lately.
As is typically the case, the sentiment shift on banks has likely overshot to the downside, as the economy still remains strong even as recessionary risks have increased from very depressed levels.
The group's near-term profitability is undoubtedly subdued, with heightened uncertainty weighing on investment banking deal flow (M&A and underwriting) and trading volumes facing very tough comparisons. But management teams are indicating that deal pipelines remain robust, suggesting that volumes will pick up promptly as the macro environment eases.
We see the bank stocks as attractively positioned currently on valuation grounds as well.
As you can see, the group is currently trading at 55% of the S&P 500 multiple, which compares to a 5-year high of 60%, low of 48% and median of 60%.
Bank Earnings Expectations
For the Zacks Major Banks industry, which includes these major banks and accounts for roughly 45% of the Finance sector's earnings, 2022 Q1 earnings are expected to decline -36.2% on -1.4% lower revenues. This would follow +8.8% earnings growth on +6% higher revenues in 2021 Q4.
For the Finance sector as a whole, total Q1 earnings are expected to decline -19.2% on +1.9% higher revenues.
It will be interesting to see management's commentary about trends in the core banking business, particularly about loan demand. The group's Q1 results are expected to show accelerating loan growth, but the worry will be with respect to sustainability given the aforementioned yield curve flattening. Most of the big banks don't have that much exposure to Russia, though Citigroup does. Management's outlook for the yield curve will also be informative.
The 2022 Q1 Earnings Season Scorecard
The Q1 earnings season will really get going with this week's big banks reporting March-quarter results, but the early reports have come out already.
As we have pointed out before, not all companies have fiscal periods that correspond with calendar quarters. Quarterly reports in recent days from companies with fiscal quarters ending February will form part of the Q1 tally. We have already seen such results from 20 S&P 500 members, including FedEx, Nike, Oracle and others.
For the 20 index members that have reported Q1 results already, total earnings are up +20.7% from the same period last year on +12.3% higher revenues, with 80% beating EPS estimates and 85% beating revenue estimates.
Not to make too big of a deal out of these very early results, but the comparison charts below put the 2022 Q1 earnings and revenue growth rates for these 20 index members in the context of what we had seen from the same group of companies in other recent periods.
Looking at Q1 as a whole, with actuals for these 20 index members and estimates for the still-to-come companies, total earnings are expected to be up +3.5% on +10% higher revenues.
Excluding the -19.2% decline in Finance sector earnings, the growth rate for the index improves to +10.5%. On the other hand, the Energy sector has a very robust earnings profile at present, with the sector expected to bring in +204.1% more earnings than the year-earlier period on +36.8% higher revenues. Excluding the hefty Energy sector contribution, earnings for the remainder of the index would be down -1.8% on +8% higher revenues.
For a detailed look at the overall earnings picture, including expectations for the coming periods, please check out our weekly Earnings Trends report >>>>Are Earnings Estimates Going Down?
Why Haven't You Looked at Zacks' Top Stocks?
Our 5 best-performing strategies have blown away the S&P's impressive +28.8% gain in 2021. Amazingly, they soared +40.3%, +48.2%, +67.6%, +94.4%, and +95.3%. Today you can access their live picks without cost or obligation.
See Stocks Free >>
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Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.