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Calm Before the Q3 Earnings Storm

Monday, October 12, 2020

It’s the calm before the storm. Not referring to Hurricane Delta, which slammed the Gulf Coast over the weekend in just about the same location Hurricane Laura did in late August, but referring instead to Q3 earnings season, which ramps up beginning this week. Today is Columbus Day/Indigenous Peoples Day in the U.S. Though markets are open for trading, there are no U.S.-based earnings reports and no national or regional economic data today.

Tomorrow, JPMorgan JPM and Citigroup C report their respective Q3 earnings. Although both are expected to be softer than in the year-ago quarter, there are differences between the two big banks. For instance, while JPMorgan’s earnings per share (EPS) is estimated to come in -12% from Q3 levels a year ago, Citi looks to be nearly 50% down, year over year. Similarly, revenues look to come in -2.4% from Q3 2019, Citi -7%.

Both banks generally post positive surprises, with the notable exception of JPMorgan’s big miss in the March quarter this year, when its 54% earnings miss brought the trailing 4-quarter average to -7%. That said, JPMorgan has only missed bottom-line estimates three times since the start of 2015. Citigroup boasts an even more impressive record than that: no EPS misses for any quarter since Q4 2014, putting it in elite company within the S&P 500 as a whole (Citi is not a Dow component, though JPM is).

Though the Banking industry faces many challenges — an era of near-zero interest rates, pandemic conditions keeping financial activities dampened, plus normal cyclical banking issues — Zacks Director of Research Sheraz Mian said in his Earnings Preview report Friday that “the outlook for capital markets and investment banking remains favorable, with Q3 trading volumes notably above the year-earlier levels.” This might provide a source of light among the big banks, and perhaps throughout the markets, as we work through Q3 earnings over the next several weeks.

For more on Sheraz’s report, click here: “Are Bank Stocks Cheap or Value Traps?”

Meanwhile, here in Q4 the second wave of Covid-19 cases is apparently in full effect. A new surge in states like New York and New Jersey, which had been dealt a harsh turn early on in the pandemic, add to our daily totals of about 50K new cases in the U.S. The good news here is that recent hot spots, like California and Florida, have seen a downtick in cases. Still, the U.S. cases per million of 23,600 is several times higher the worldwide average.

Currently, the U.S. has reported nearly 7.8 million cases of Covid-19, with 215K deaths to date. Worldwide, and with a second wave being seen in regions like the UK and France, we’re up to 37.5 million cases with 1.08 million fatalities at this stage. Far from being behind us, the pandemic is proving pesky and resilient, with a vaccine still months away at the earliest.

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