It’s going to be a big week for financial sector-related exchange traded funds as Wall Street banks are set to kick off the earnings season.
JPMorgan Chase & Co (NYSE: JPM), the largest bank in the United States, reports first-quarter results on Wednesday.
On Thursday, Citigroup Inc (NYSE: C), Wells Fargo & Co (NYSE: WFC), Goldman Sachs Group Inc (NYSE: GS), and Morgan Stanley (NYSE: MS) will report their quarterly results. Bank of America Corp (NYSE: BAC) is due the following Monday.
The Financial Select Sector SPDR (NYSEArca: XLF), the largest financial sector-related ETF by assets under management, includes a 9.3% tilt toward JPM, 6.7% in BAC, 4.5% in WFC, 2.8% in MS, and 2.6% in GS.
Investors will have to pare down expectations for this year’s Q1 results, especially when compared to the stellar results from Q1 2021 that was just rebounding off the Covid-19 pandemic.
Big U.S. banks are projected to reveal a sharp decline in first-quarter earnings year-over-year after capitalizing from exceptionally strong dealmaking and trading, and extra funds left for potential loan losses, Reuters reports.
According to analyst estimates from Refinitiv, net income among the six biggest U.S. banks will be 35% lower year-over-year. Investment banking revenues also stalled after the Russian invasion of Ukraine in late February added to global market uncertainty.
Consequently, analyst Christopher McGratty of Keefe, Bruyette & Woods., argued that the environment is challenging for the biggest banks and projected revenue declines of 36% in investment banking and 18% in trading.
“Last year was massive for capital markets at the banks so comparisons are hard,” McGratty told Reuters.
Jason Goldberg of Barclays, though, believed that a short-term pain for the quarter could help consolidate their position for a more positive long-term performance. For example, PNC Financial Services Group lowered its Q1 revenue expectations but raised its full-year expectations.
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