Banks Expected To Post Lackluster Earnings Results Next Week – For Good Reason

Written by ETFdailyNews.com

Wall Street is getting increasingly bearish on financials heading into earnings, amid sluggish loan demand and for good reason: The Federal Reserve hiked interest rates by 25 basis points last month, marking the second time since December [that] it did so [and] the market is pricing in two more interest rate boosts this year as the Fed continues to adjust its policy in the face of an improving economic backdrop. Persistently higher rates will likely continue to dent loan demand, which is nothing but bad news for U.S. banks.

While analysts expect the six largest U.S. banks by market cap to see EPS rise by 4.7% on average, that’s coming from a very low bar set in the year-ago period. Last year’s first quarter was historically weak for financial institutions amid growing macroeconomic concerns.

As Reuters notes, Wall Street is actually getting increasingly bearish on financials heading into earnings, amid sluggish loan demand:

Several analysts lowered earnings estimates last week, citing loan weakness as well as sharp declines in revenue from stock trading, where commissions have come under pressure from a new regulation in Europe and broader troubles for active asset managers.

…We’ll get a close look at how the financial sector is doing next week, with earnings results due out from heavy hitters like JPMorgan Chase & Co. (NYSE: JPM), Citigroup Inc. (NYSE: C) and Wells Fargo & Co. (NYSE: WFC). The following week, rivals like Bank of America Corp. (NYSE: BAC), Goldman Sachs Group Inc. (NYSE: GS), and Morgan Stanley (NYSE: MS) will post their latest figures.

The Financial Select Sector SPDR Fund (NYSE: XLF), year-to-date, has gained 1.25%, versus a 5.29% rise in the benchmark S&P 500 index during the same period…has an ETF Daily News SMART Grade of B (Buy), and is ranked #15 of 38 ETFs in the Financial Equities ETFs category.