JPMorgan, Citi Kick Off Big Bank Earnings Season as Expectations Remain Subdued on Economic Headwinds: Q2 Earnings Preview – Bank of America (NYSE: BAC), Bank of New York Mellon (NYSE: BK)

The second-quarter earnings season is getting underway in earnest with earnings reports from the largest banks, and it remains to be seen whether these companies will establish a positive pace and rekindle buying interest in the market.

Earnings growth is expected to be lower than the broader market: Most of the S&P 500 companies reporting results in the next two weeks are in the financial sector, so their results could have a big impact on the market. Among financial companies, those in the insurance and capital markets sectors are expected to contribute significantly to year-over-year earnings growth, financial data analytics firm FactSet said in its weekly earnings report.

The financial sector is expected to post 4.3% year-over-year earnings growth, below the 8.8% growth forecast for all S&P 500 companies. Within the financial markets sector, investment banking and brokerage businesses could post a 53% increase in profits. Exchanges and financial data and asset management and custody banks could each post 10% growth.

See also: The best financial services stocks right now

Key indicators to watch: The strength of fundamental lending and borrowing activities depends on prevailing interest rates. The federal funds rate, which is the benchmark to which all interest rates are indexed, remained at a 22-year high of 5.25%-5.50%.

“The interest rate environment remained marginally negative in the second quarter, although slightly less so than in the first,” he said. Sean Ryanvice president of specialty banking and finance at FactSet. The analyst said other comprehensive income could have suffered further losses because of the 17 basis point rise in the 10-year Treasury yield in the June quarter.

Provisions could rise, hurting financial results, as the Fed’s stress test results released in late June showed that loss rates on commercial and industrial loans could rise to 8.1% in 2024 from 6.7% last year.

Slow loan growth may have reduced net interest income somewhat, he said, adding that “the bottoming out process for net interest margins continues to play out, with another tranche of banks likely to post their first increases of this cycle, and
“It is more likely that this will lead to future increases.”

Noninterest revenues could remain mixed, according to Factset. WTW’s Quarterly Deal Performance Monitor showed that the North American M&A market remained challenging, with acquirers underperforming their regional index by -7.7%, marking the sixth consecutive quarter that buyers have lagged their industry peers.

FactSet said the mortgage banking sector may have benefited from higher origination activity, including refinancings, despite slightly higher interest rates. Wealth and asset management may have benefited from the S&P 500’s 3.9% gain in the quarter, though that was down from the 10.2% gain in the first quarter.

The scale of earnings:

Friday:

• JPMorgan Chase & Co. JPM
• Citigroup Inc. VS
• Wells Fargo & Company WFC
• Bank of New York Mellon Corporation BC

Monday:

• Goldman Sachs Group, Inc. GS

Tuesday:

• Bank of America Company BAC
• Morgan Stanley MS

Here’s a look at what’s expected of big banks:

Evolution of financial actions: THE Invesco KBW Bank Exchange Traded Fund KBWBan exchange-traded fund that tracks the performance of the KBW Bank Index, gained just 0.5% in the second quarter, underperforming the broader market. The ETF is up about 15.3% year to date.

In pre-market trading on Friday, the ETF was up 0.64% to $56.20, according to data from Benzinga Pro.

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