Big bank earnings — What you need to know in markets on Friday

Myles Udland
Markets Reporter

Another day, another big swing for the U.S. stock market.

After an across-the-board decline on Wednesday, U.S. markets bounced back on Thursday, with tech stocks leading the way as Amazon (AMZN), Microsoft (MSFT), and Facebook (FB) shares all hitting  record highs, along with the Nasdaq touching a new record after a 1.4%, or 107 point, gain to close at 7,823.92.

The Dow and the S&P 500 were also higher with each index also gaining about 0.9% on the session while the small-cap Russell 2000 lagged the other indexes, gaining just 0.4% on the day.

On Friday, investors will turn their attention to second-quarter earnings season, which unofficially gets underway with JPMorgan (JPM), Citi (C), Wells Fargo (WFC), and PNC Financial (PNC) all set to report before the bell.

Results out of JPMorgan, the country’s biggest bank by assets, and Wells Fargo will likely be the most closely watched, as commentary from JPMorgan CEO Jamie Dimon tends to grab headlines and Wells Fargo remains under scrutiny from regulators.

According to estimates from Bloomberg, JPMorgan is expected to report adjusted earnings per share of $2.22 on revenue of $27.34 billion, while Wells should report adjusted earnings per share of $1.11 on revenue of $21.7 billion. Net interest margin at JPMorgan is expected to come in at 2.46%, with Wells’ NIM forecast to hit 2.87%.

JPMorgan Chase & Co. Chairman and CEO Jamie Dimon speaks at a luncheon on Thursday, April 19, 2018 in Washington. (Kevin Wolf/AP Images)

As for the broader banking sector, which will be in focus early next week as well with Bank of America, Goldman Sachs, and Morgan Stanley set to report earnings, this earnings period should be just okay.

“Industry fundamentals are solid and fairly consistent with our mid-quarter updates, with loan growth and investment banking revenue generation accelerating into June, enough of a yield curve shift to support modest [net interest margin] expansion even with the pace of deposit growth unchanged (slow) and competition intensifying,” said analysts at Credit Suisse in a note earlier this week.

“All in, we forecast 2Q18 EPS to be up ~22% year-over-year with a respectable ~16% average [return on tangible equity]; the quarter will be fine,” the firm added.

Credit Suisse also said that the stock performance of the major U.S. banks in recent months shows sentiment toward the sector has waned, with the XLF ETF that tracks the S&P 500’s financial sector losing about 3% in the last three months, while the S&P 500 has gained around 5% during that time.

Financial stocks have underperformed the S&P 500 significantly over the last three months, showing investors are cautious on the sector ahead of earnings releases set for the next several trading days. (Source: Yahoo Finance)

Jim Shanahan, an analyst at Edward Jones, told Bloomberg this week that, “We’re not expecting very strong results for the big banks.” 

Shanahan said that corporate tax cuts, which were supposed to spur hiring and investment, haven’t resulted in the kind of follow-through many investors expected with the uncertainty of trade hanging over corporate decision making.

Outside of the banks, expect a focus on corporate commentary to dominate during this earnings period, which will come and go quickly as 87% of the S&P 500’s market cap will release results by August 3.

And on the economic data side, reports due out in the morning include the June reading on import prices and the preliminary gauge on consumer sentiment in July from the University of Michigan.

Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland