Big banks kick off Q3 earnings season, CPI inflation data: What to know this week

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Yahoo Finance 10 October, 2021 - 12:04pm 5 views

What To Watch As Third-Quarter Earnings Season Begins

Texasnewstoday.com 10 October, 2021 - 08:00am

The pace of S&P 500 year-over-year earnings and sales growth reached eye-popping levels for the second quarter due to the easy comparisons with Covid-ravaged 2020 and robust economic growth. The expectations going into this reporting season are more modest, with earnings slated to grow at almost 28% year-over-year. If history is any guide, the actual performance should still exceed these elevated levels despite a moderation in economic activity. While it will be necessary for earnings to beat expectations, forward guidance will be essential with the current worries about the economic outlook and cost pressures. The impact of supply chain disruptions and any color about the timing of normalization will be significant for forecasts. Lastly, the effect of higher costs and the ability to pass on higher prices to protect profit margins will be closely scrutinized. Despite expecting another overall outperformance relative to earnings growth expectations, the beats should be smaller and less frequent than in the past few quarters. With this challenging backdrop, the third-quarter earnings season likely takes on additional importance both for the overall market and individual companies.

There are 20 S&P 500 companies scheduled to report earnings this week, but the primary focus will be on the financials and the banks in particular. There are a handful of other companies like Delta Air Lines (DAL) and Domino’s Pizza (DPZ) on the calendar. Among the banks reporting are JPMorgan Chase (JPM), Goldman Sachs (GS), Bank of America (BAC), Citigroup (C), and Wells Fargo (WFC), so the majority of big banks will provide financial results and an idea of the operating environment. According to FactSet, the financials should be around the middle of the pack in earnings growth rates, with consensus year-over-year growth estimates of 17%.

Banks stock prices have been significantly correlated with yields, so the recent rise in interest rates and fewer concerns about the Delta variant weighing on the pace of future economic growth has bolstered the shares. Banks should again show strong credit metrics and therefore reduce loan loss reserves which should help in exceeding the consensus earnings estimates. The bulk of the reserve releases are likely over already, though. Earnings from capital markets are likely to be less helpful than in the recent past, but wealth management and investment banking fees should be a positive driver. The more important things to watch in this case will be the second quarter’s actual and future outlook for loan growth, pre-provisioning net revenue (PPNR), and net interest margins (NIM). PPNR is a measure of sales from lending and fee income without the distortion from changes in loan loss reserves, which is a gauge of ongoing earnings power. NIM is the amount a bank is earning in interest on loans compared to the amount it is paying in interest on deposits, which could be pressured by low rates.

This season, the impact of higher costs and the ability to pass on higher prices to protect profit margins will be closely scrutinized across all companies. Labor costs will be a headwind for companies, with average hourly earnings rising at a 4.6% year-over-year rate in September. Offsetting higher labor costs is that companies have only re-hired 78% of the jobs lost during the Covid-lockdown. Higher commodity costs will also negatively impact most company’s profitability. The increase in commodity prices goes beyond oil, but as an example, the sharp rise in oil prices negatively impacts the costs for many non-energy companies. The energy sector had a loss in the third quarter of 2020, but the expected 53% increase in sales tells the story of the oil price rebound.

Supply chain disruptions remain a significant issue for this earnings season. These disruptions both increased costs for most companies and resulted in lost sales for companies unable to secure the goods demanded by consumers. Increased shipping costs are almost certain to be a familiar refrain by the end of this reporting season. In the end, robust demand and increased productivity should overcome all these challenges and allow the actual third-quarter results to exceed expectations.

Aside from earnings, Congress has reached a deal to raise the debt limit enough to kick the can down the road until December 3 at least. Recall that previously, Congress was able to pass a short-term budget resolution to avoid a government shutdown until this date. This temporary measure should allow enough time for the Democrats, who control all three branches of the federal government, to unilaterally raise the debt ceiling via reconciliation. With the debt ceiling crisis averted until December, Congress will now return to focusing on negotiating the hefty tax and spending bills.

Disclosure: Glenview Trust currently has holdings of Delta Airlines (DAL), JPMorgan (JPM), Goldman Sachs (GS), Bank of America (BAC), and Citigroup (C) within its recommended investment strategies.

I am the Chief Investment Officer of The Glenview Trust Company, which provides investment management along with estate and financial planning to wealthy families. I

I am the Chief Investment Officer of The Glenview Trust Company, which provides investment management along with estate and financial planning to wealthy families. I often appear on U.S. and international television and have been featured on ABC, Bloomberg, Bloomberg Asia, CNBC, CNBC Asia, Fox Business, and NHK World. Previously, I served as PNC Asset Management Group’s Global Chief Investment Strategist. With over $140 billion in assets under management at PNC, I acted as the primary driver of asset allocation and model portfolio construction for high-net-worth individuals, family offices, and institutional investors. I started my career on Wall Street as a financial analyst with Salomon Brothers, where I got my first exposure to Warren Buffett. I have a bachelor’s degree from the University of Dayton and an MBA from the University of Pittsburgh. In addition, I earned the Chartered Financial Analyst® (CFA®) and Chartered Market Technician (CMT) designations.

What To Watch As Third-Quarter Earnings Season Begins

Business Insider Australia 10 October, 2021 - 08:00am

The pace of S&P 500 year-over-year earnings and sales growth reached eye-popping levels for the second quarter due to the easy comparisons with Covid-ravaged 2020 and robust economic growth. The expectations going into this reporting season are more modest, with earnings slated to grow at almost 28% year-over-year. If history is any guide, the actual performance should still exceed these elevated levels despite a moderation in economic activity. While it will be necessary for earnings to beat expectations, forward guidance will be essential with the current worries about the economic outlook and cost pressures. The impact of supply chain disruptions and any color about the timing of normalization will be significant for forecasts. Lastly, the effect of higher costs and the ability to pass on higher prices to protect profit margins will be closely scrutinized. Despite expecting another overall outperformance relative to earnings growth expectations, the beats should be smaller and less frequent than in the past few quarters. With this challenging backdrop, the third-quarter earnings season likely takes on additional importance both for the overall market and individual companies.

There are 20 S&P 500 companies scheduled to report earnings this week, but the primary focus will be on the financials and the banks in particular. There are a handful of other companies like Delta Air Lines (DAL) and Domino’s Pizza (DPZ) on the calendar. Among the banks reporting are JPMorgan Chase (JPM), Goldman Sachs (GS), Bank of America (BAC), Citigroup (C), and Wells Fargo (WFC), so the majority of big banks will provide financial results and an idea of the operating environment. According to FactSet, the financials should be around the middle of the pack in earnings growth rates, with consensus year-over-year growth estimates of 17%.

Banks stock prices have been significantly correlated with yields, so the recent rise in interest rates and fewer concerns about the Delta variant weighing on the pace of future economic growth has bolstered the shares. Banks should again show strong credit metrics and therefore reduce loan loss reserves which should help in exceeding the consensus earnings estimates. The bulk of the reserve releases are likely over already, though. Earnings from capital markets are likely to be less helpful than in the recent past, but wealth management and investment banking fees should be a positive driver. The more important things to watch in this case will be the second quarter’s actual and future outlook for loan growth, pre-provisioning net revenue (PPNR), and net interest margins (NIM). PPNR is a measure of sales from lending and fee income without the distortion from changes in loan loss reserves, which is a gauge of ongoing earnings power. NIM is the amount a bank is earning in interest on loans compared to the amount it is paying in interest on deposits, which could be pressured by low rates.

This season, the impact of higher costs and the ability to pass on higher prices to protect profit margins will be closely scrutinized across all companies. Labor costs will be a headwind for companies, with average hourly earnings rising at a 4.6% year-over-year rate in September. Offsetting higher labor costs is that companies have only re-hired 78% of the jobs lost during the Covid-lockdown. Higher commodity costs will also negatively impact most company’s profitability. The increase in commodity prices goes beyond oil, but as an example, the sharp rise in oil prices negatively impacts the costs for many non-energy companies. The energy sector had a loss in the third quarter of 2020, but the expected 53% increase in sales tells the story of the oil price rebound.

Supply chain disruptions remain a significant issue for this earnings season. These disruptions both increased costs for most companies and resulted in lost sales for companies unable to secure the goods demanded by consumers. Increased shipping costs are almost certain to be a familiar refrain by the end of this reporting season. In the end, robust demand and increased productivity should overcome all these challenges and allow the actual third-quarter results to exceed expectations.

Aside from earnings, Congress has reached a deal to raise the debt limit enough to kick the can down the road until December 3 at least. Recall that previously, Congress was able to pass a short-term budget resolution to avoid a government shutdown until this date. This temporary measure should allow enough time for the Democrats, who control all three branches of the federal government, to unilaterally raise the debt ceiling via reconciliation. With the debt ceiling crisis averted until December, Congress will now return to focusing on negotiating the hefty tax and spending bills.

Disclosure: Glenview Trust currently has holdings of Delta Airlines (DAL), JPMorgan (JPM), Goldman Sachs (GS), Bank of America (BAC), and Citigroup (C) within its recommended investment strategies.

I am the Chief Investment Officer of The Glenview Trust Company, which provides investment management along with estate and financial planning to wealthy families. I

I am the Chief Investment Officer of The Glenview Trust Company, which provides investment management along with estate and financial planning to wealthy families. I often appear on U.S. and international television and have been featured on ABC, Bloomberg, Bloomberg Asia, CNBC, CNBC Asia, Fox Business, and NHK World. Previously, I served as PNC Asset Management Group’s Global Chief Investment Strategist. With over $140 billion in assets under management at PNC, I acted as the primary driver of asset allocation and model portfolio construction for high-net-worth individuals, family offices, and institutional investors. I started my career on Wall Street as a financial analyst with Salomon Brothers, where I got my first exposure to Warren Buffett. I have a bachelor’s degree from the University of Dayton and an MBA from the University of Pittsburgh. In addition, I earned the Chartered Financial Analyst® (CFA®) and Chartered Market Technician (CMT) designations.

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