Earnings season for the fourth quarter of 2023 begins on Friday, January 12 with reports from the big banks: JPMorgan Chase (JPM), Wells Fargo (WFC), Citigroup (C), and Bank of America (BAC).
Which means that earnings season is going start off with a dull thud. More than 70% of the Standard & Poor’s 500 companies that are scheduled to report earnings for the fourth quarter over the next few weeks are banks and the banking segment of the the financial sector in the index is projected by Wall Street analysts to show a 21% year over year decline in earnings.
an industry at -21%. This industry is also expected to be the largest negative contributor to year-over-year earnings for the sector. If the banking industry were excluded from the financials sectors, the financials sector would report year-over-year earnings growth of 8.8% rather than a year-over-year decline in earnings of -3.1%. At the sub-industry level, both the Diversified Banks (-18%) and Regional Banks (-40%) sub-industries are expected to report year-over-year declines.
“When bank earnings kick off on Friday, January 12, attention will be focused primarily on 1) the impact of the sharp decline in interest rates during the quarter; 2) the level (and breadth) of credit quality deterioration; and 3) updates to 2024 guidance in light of more benign rate and GDP expectations,” says Sean Ryan, VP/Director for the banking and specialty finance sector at FactSet.
The general market trend looked weak again today–the S&P 500 closed down 0.21%, the Dow Industrial Average dropped 0.41%, and the NASDAQ Composite ended the day off 0.04%. Bad earnings news from the big banks certainly won’t help sentiment.
The question to my mind is Will investors decide that bad earnings news from the big banks should be extrapolated to all stocks or will they look past banks to big tech earnings at the end of the month? (Amazon (AMZN), for example, reports on February 1.)
Depending on the answer to that question we’ll see a continued downward trend for the general market or a move of money back to the big tech Magnificent Seven stock.
A lot depends on what earning those big techs are projected to deliver and what earning they will actually report.
Part 2 of my earnings season outlook will dig a little deeper into the likely story for earnings from the Magnificent Seven tech stocks.
