Earnings Season: The Thrill of Victory, the Agony of Defeat!

Years ago, we would look for Alcoa (AA) as the start to earnings season, yet times have changed. Friday’s trading session officially kicks off the second quarter earnings season with a slew of banking stocks which set the tone for the next few weeks. Today, before the market opens, we will get a look behind the curtain at financial juggernauts like JPMorgan Chase & Co. (JPM), Citigroup (C), Wells Fargo & Co (WFC), BlackRock (BLK) and several other smaller banks.

Given the recent events in the banking sector with the failures of Signature, Silvergate, FirstRepublic and SiliconValleyBank, traders are cautiously awaiting the earnings results to gauge the strength and stability of the financial sector. 

JPMorgan (JPM) has had a phenomenal year, with significant earnings beats the last 3 quarters. Over the last year, they have increased earnings per share from $2.76 to $4.10, a 49% increase. This is due to many factors including a very diversified business model which shielded them from much of the financial turmoil over the past few months. The close connection with Jamie Dimon and the Federal Reserve certainly didn’t hurt either. They bought First Republic Bank in one of the sweetest deals of the decade! Essentially taking all the positive assets and dumping all the bad assets. Then getting the Fed to guarantee no losses past a certain point really sweetened the pot. Next to Berkshire Hathaway (BRK.B), they are the best looking stock out of the 73 components of the S&P 500 Financials Sector SPDR (XLF).

On the 3-year chart you see below, they are past the highs from when all the banking chaos began back in March of 2023, and consistently pushing higher. Given their dominant position in the sector, deep political connections and market influence, there’s good reason to believe that they will be retesting the all-time highs of $172 from back on October 21’. More importantly this earnings announcement will give investors a better idea of how they weathered the recent storm and what the roadmap is for JPMorgan going forward.

The second-best performer out of the Friday earnings releases is industry behemoth BlackRock (BLK). While the past year has been good, they have only increased EPS from $7.36 to $7.93, a 7.74% increase and the past 3 quarters have seen a sharp decline in EPS. Q1 EPS came out at $7.93 and analysts expect $8.46 tomorrow. While the entire financial sector has seen steady gains since the March lows, BlackRock is yet to make it back to the pre-crisis highs. 

From there, we look at a couple stocks that have been struggling. Wells Fargo’s (WFC) quarterly earnings have been all over the place. The most recent quarter saw EPS double from $0.61 to $1.23, and the past year increasing 66%. Out of these four bank stocks, that puts Wells Fargo at the top of the EPS gainer list for the past year. However, technically, they look weaker. Even before the banking situation, there was a relatively tight trading range. While the trend for the past few months has been up, it has struggled to reach prior highs. 

Finally, we have Citigroup (C). For 3 quarters EPS was on a sharp decline. The most recent release showed a 100% gain quarter over quarter, but still reflecting unchanged EPS numbers over the full year. On the technical front, the past couple of years have been brutal, with the current share price down 40%. They were selling off long before we saw the banking issues in March. 

All things being equal, you go with the winners. JPMorgan has been dominant, and barring any unforeseen roadblocks, should continue to move higher. Citigroup is clearly struggling and investing money in a sideways trending security is a waste of time unless you’re trading iron condors or spreads. Ultimately there are much bigger questions than just the bottom-line earnings numbers for these banks. With the stern warning from Jerome Powell on commercial real estate loans, the meteoric rise of 500 basis points in the Federal Funds rate and exposure to long dated maturities, all eyes are on each bank’s exposure and stability. When I step back and think about the upcoming earnings season, I’m reminded of the classic ABC sports commercial I watched as a kid: “The thrill of victory, the agony of defeat”. We’re bound to see some of each over the next few weeks accompanied with a heavy dose of volatility! 

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