As big banks like JPMorgan Chase & Co. (NYSE:JPM), Citigroup Inc. (NYSE:C) and Goldman look forward to clean consensus estimates that have fallen considerably during the previous quarter, the quarterly results will give investors their first experience of how disappointing an earning season can get. With 13 out of the 30 companies that have scheduled to report being Financial companies, the quarterly results from such market giants is something that we can't afford to ignore. That being said, the two Dow components that report this week will be J.P. Morgan Chase and Co. and Goldman Sachs Group Inc. (JPM, -.44% and GS, +0.54% respectively).
The second largest downfall
According to senior earnings analyst John Butters from FactSet, down from 10.1% to a growth of just 4.3%, financial companies, in the third quarter reported the second largest downward revision. Falling next to materials, which was the sector that saw the largest downward revision.
Paul Miller, who is an analyst at FBR Capital Markets, mentioned in a note that fees for global investment banking are at the lowest in the last 4-5 years and if the interest rates remain stagnant as they are, margins could continue to suffer. He added that some investors have raised concerns about the high levels of volatility in trading revenues, as this has inhibited the banks rather than helping them in any way.
Possible winners this earnings season
According to Miller, Wells Fargo & Co (NYSE:WFC), PNC Financial Services Group Inc. (NYSE:PNC) and U.S. Bancorp (NYSE:USB) are most likely to be the winners this earnings season. The reason he provided was that these are 'high quality' names associated with the world of finance and companies like these are hardly exposed to market ups and downs concerning growth prospects.
The investors have also not lived well with the Federal Reserve's decision of not raising the interest rates in September. This was seen contrary to their perception that hiking the interest rate would be more peaceful than expected. So, only after there are huge beats to these lowered expectations, financial company stocks see negligible upside during earnings season.
And this has been the vase consistently, as since the very beginning of the third quarter, financial stocks have struggled to perform as per the expectations on the S&P index 500. And the KBW bank index, which is available to track 24 large banks in the world, has performed even worse. Other than banks and financial earnings, this week's report also includes Dow components like General Electric Company (NYSE:GE), Intel Corporation (NASDAQ:INTC), and S&P component Netflix, Inc.(NASDAQ:NFLX)