JPMorgan, Citigroup and Wells Fargo eyed as Q1 earnings kick off

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Banking giants JPMorgan Chase, Citigroup and Wells Fargo will all be releasing Q1 2018 earnings reports before Wall Street’s opening bell on Friday. At the moment, the consensus recommendation for the former two is “buy” – in line with the average recommendation for the Banks peer group – while Wall Street analysts assign, on average, a “hold” recommendation for Wells Fargo.

JPMorgan’s quarterly earnings per share (EPS) are anticipated to stand at $2.28 according to analysts submitting their forecasts to Thomson Reuters’ estimate system (the Institutional Brokers’ Estimate System – I/B/E/S), with an upward revision from $2.26 taking place over the last four weeks.

Should the company’s bottom line come as projected, this would reflect a rise of 38.2% compared to the same quarter last year when the company made $1.65 per share. Analysts’ EPS estimates range from $2.17 to $2.44, while the firm managed to surpass projections in all four quarters that preceded.

Should an earnings beat be delivered, JPMorgan’s stock price could receive a lift to potentially challenge the area around the 50-day moving average – currently at $113.22 – which might act as a barrier to the upside before late February’s record high of $119.33 is eyed next.

On the downside and in case of disappointing results, the range around the $110.00 round figure could provide support; the area around this level was congested recently. Steeper declines would shift the focus to the two-month low of $106.08 that was hit on April 2.

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In the case of Citigroup, EPS for the quarter ending March 2018 are expected to come in at $1.61, this being the result of a downward revision from $1.62 from four weeks ago. Still, should earnings come in line with forecasts, this would constitute an increase of around 19.5% relative to 2017’s respective quarter when the firm earned $1.35 per share.

The most bearish earnings estimate for the firm stands at $1.55 and the most bullish at $1.66 per share. Similar to rival JPMorgan, Citigroup beat analysts’ EPS projections in the four preceding quarters.

If Citi’s earnings positively surprise, its stock price could generate buying interest, with resistance to gains possibly coming around Tuesday’s three-week high of $71.24. Notice that the current levels of the 200- and 50-day moving averages – other potential barriers to price advancing – lie not far above, at $72.13 and $73.50 correspondingly.

In the event of an earnings miss, support could come around the $69.00 round figure which was congested in late-March to early-April, with more bearish movement increasingly turning the attention to the seven-month low of $66.55 from April 2.

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Lastly, Wells Fargo’s consensus EPS during Q1 stand at $1.07, remaining unchanged over the last four weeks. The corresponding figure from the same quarter last year was at $1.00, translating into a 7% jump should expectations materialize.

The lowest EPS estimate by analysts providing their input to Thomson Reuters is at $1.01 and the highest at $1.16. In two out of four previous quarters, the bank’s earnings results came in above forecasts and in the remaining two they negatively surprised.

An upbeat report that exceeds Wall Street’s expectations could see Wells Fargo’s stock price rising to challenge last week’s three-week high of $53.96 – the range around this level was congested between September and November.

Stronger bullish movement might see the price targeting the area around the 200- and 50-day moving averages, at $56.10 and $56.70 respectively. Conversely, a disappointing report may see the stock price coming under selling pressure.

Support to declines could come around April 4’s seven-month low of $50.42, with a downside violation bringing the one-and-a-half-year low of $49.27 that was posted in early September into scope.

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Usually holding true in earnings releases, the larger the discrepancy between forecasts and actual results, the sharper the corresponding stock price movement is likely to be.

All three banks are S&P 500 constituent stocks, with JPMorgan also being one of the thirty stocks that comprise the Dow Jones Industrial Average. Year-to-date and before Thursday’s US market open, the S&P and the Dow are down by 1.2% and 2.1% respectively. JPMorgan’s, Citigroup’s and Wells Fargo’s equivalent performance stands at 3.4%, -6.1% and -14.4% in the order written (i.e. JPMorgan is the only one delivering positive performance year-to-date).

Wells Fargo – the worst performer – is on the receiving end of negative publicity at the moment as it could face a record fine amounting to hundreds of million dollars by the top US watchdog for consumer finance due to abusive practices relating to the bank’s auto insurance and mortgage lending businesses. It is also worthy of mention that Bank of America will see the release of its Q1 results before Monday’s opening bell; EPS of $0.59 are anticipated for the corporation.

Concluding by briefly touching on the outlook for financials, it is looking positive for the most part, though some caveats are in place. On the positive side, the US economy – being helped by a lower tax environment – is seen as picking up steam, the Federal Reserve appears well on track to continue delivering interest rate hikes – this translating into higher margins for banks – and there is growing speculation that financial regulations stemming from the 2008 global financial crisis will be rolled back.

It should be kept in mind though that November’s mid-term elections, where all seats of the House of Representatives and 33 of 100 Senate seats will be contested, might prove instrumental for regulatory changes; Republicans losing power is seen as weakening the odds for deregulation in the banking sector.

Also, some other themes – such as a trade war or a more widespread conflict in Syria – could introduce complications in markets, weighing on sentiment. It is notable though that the return of volatility in markets is seen as positive to an extent for financials, especially to those with investment banking arms, as it is boosting their revenues from trading.

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