US banking earnings disappoint and what to expect next week US banking earnings disappoint and what to expect next week US banking earnings disappoint and what to expect next week

US banking earnings disappoint and what to expect next week

Peter Garnry

Head of Equity Strategy

Summary:  Both JPMorgan Chase and Wells Fargo negatively surprised the market with a worse than expected net interest income outlook and bigger than estimated credit provisions pulling S&P 500 futures down 1%. The earnings releases today were certainly not the start investors had hoped increasing the stakes for next week's earnings. We highlight earnings next week from consumer bellwether P&G, streaming giant Netflix, and mining equipment manufacturer Sandvik.


US banking earnings disappoint

The first major Q4 earnings have hit the news wire with JPMorgan Chase report Q4 adjusted revenue of $35.6bn vs est. $34.2bn and EPS of $3.57 vs est. $3.10, but despite these strong numbers the outlook on net interest income of $73bn vs est. $74.4bn is disappointing investors and the provision for credit losses surprised negatively at $2.3bn vs est. $2.1bn. CEO Jamie Dimon says there is still a lot of uncertainty around the impact from the macro headwinds and that the firm’s macroeconomic outlook has deteriorated modestly. Wells Fargo has also reported Q4 earnings missing on revenue and also reporting a negative surprise on credit provisions ($57mn vs est. $860mn). Wells Fargo’s CFO is also saying that the bank is preparing for the economy to worsen. On the positive side, the bank is resuming its share repurchases in Q1. The US banking results have pulled down the S&P 500 futures by 1% to the 3,965 level.

S&P 500 futures | Source: Saxo

Margin compression is main theme in Q4 earnings season

The Q4 earnings season has started today and will ramp up next week before the big show starts in the following week. Margin compression was the theme of Q3 and will definitely be the key theme again in Q4. While commodities have stopped galloping higher wage growth has taken over as the next headache for CEOs cutting into margins. With consumer spending coming down in volume terms we have now reached a limit in which companies can no longer pass all of inflation on. The casualty is operating margins. So watch Tesla in the last month cutting prices aggressively across all countries in the range between 5-20%. When you are running a 25% gross margin business that will hurt earnings. Analysts are still not reflecting this reality expecting Tesla to grow earnings 24% y/y this year.

In the S&P 500 Index 12-month forward EPS estimates are only down 4% from the peak suggesting an equity market that broadly does not expect a recession but rather a soft landing with the Fed pausing after two rate hikes of 25 basis points. Analysts expect EPS in S&P 500 to rise 10% over the next 12 months despite the 4% reduction in those estimates. This scenario seems highly unrealistic and thus 2023 is likely to be paved by negative surprises.

The list below shows the most important earnings releases next week with the three most important to watch being P&G, Netflix, and Sandvik.

P&G reports Q4 earnings on Thursday before the market open with analysts expecting revenue growth of -1.1% y/y and EPS of $1.59 down 4% y/y suggesting that volumes are being hit by inflation and that analysts expect P&G to see their operating margin decline q/q. The potential upside for P&G on its outlook is the reopening of China.

Netflix reports Q4 earnings on Thursday after the market close with analysts expecting revenue growth of 1.7% y/y as streaming services are still facing headwinds post the pandemic. EPS is expected at $0.51 down 67% y/y. The things to focus on for investors are user growth, updates on its advertising business, and user engagement figures relative to recent content launches.

Sandvik, the Swedish-based manufacturer of tools for metals working and rock excavation, reports Q4 earnings on Friday before the market open. Analysts expect revenue growth of 4.6% y/y and EPS of SEK 3.51 up 11.5% y/y. We expect a positive outlook for Sandvik as the commodity super cycle is intact delivering strong tailwinds for capital expenditures in the global mining industry benefitting suppliers such as Sandvik.

  • Tuesday: Sartorius Stedim, Morgan Stanley, Goldman Sachs, Interactive Brokers
  • Wednesday: EQT, Charles Schwab, PNC Financial Services, Kinder Morgan
  • Thursday: Procter & Gamble, Netflix
  • Friday: Investor, Sandvik, Ericsson, Schlumberger

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank (Schweiz) AG
The Circle 38
CH-8058
Zürich-Flughafen
Switzerland

Contact Saxo

Select region

Switzerland
Switzerland

All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law.

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.