3 Earnings Reports to Watch Next Week — How Will the Big Bank Stocks Fare?

Stock Market

Editor’s note: InvestorPlace’s Earnings Reports to Watch is updated weekly. Please check back next week for our latest earnings picks.

Here we go. Earnings season is about to begin, with earnings reports from several top stocks on the way in coming weeks. It starts next week with big bank stocks in the U.S.

In October and November, earnings reports simply weren’t enough. Investors were concerned — if not outright panicked — about everything from higher interest rates to recession risk to overall valuation. Even strong reports often led to selloffs.

In the past few sessions, however, U.S. stocks have started to recover. For the rally to continue, earnings are going to have to be strong. And it will be up to bank stocks next week to get earnings season started right.

These three reports look like the key financial reports next week, from three of the top stocks in the space. If these U.S. banks show continued strength, investors might start to trust the recent rally. If not, the selling that dominated the fourth quarter could return with a vengeance.

Source: Shutterstock

JPMorgan Chase (JPM)

Earnings Report Date: Tuesday, Jan. 15, before market open

As far as the rest of the market goes, the earnings report from JPMorgan Chase (NYSE:JPM) might be the most important of the week. JPM is one of the top stocks among bank stocks – it’s also one of the top stocks from a long-term perspective, in my opinion.

JPM is well-run. CEO Jamie Dimon is widely respected. If the economy is good, JPMorgan Chase should be winning. That’s been the case of late: JPM hasn’t missed Street estimates of either revenue or profit since 2015.

So for the market as a whole, JPMorgan earnings need to be strong. A miss from, say, Citigroup (NYSE:C) (who reports on Monday) can be blamed on that company’s choppy execution. Even if Goldman Sachs (NYSE:GS) misses, that firm has lost investment banking market share to JPMorgan Chase and Morgan Stanley (NYSE:MS).

Disappointing numbers from JPMorgan Chase, though, are going to be blamed on the environment. And they are likely to spook investors.

As far as JPM itself goes, the question is if good earnings will matter. That was a question six months ago as well — and recent trading shows that they probably won’t. Even with a stronger market in the past few sessions, I wouldn’t expect a big rise in JPM stock after a strong earnings report. But I’d be very cautious toward JPM – and major indices – if the report disappoints at all.

3 Earnings Reports to Watch Next Week -- How Will the Big Bank Stocks Fare?

Source: Shutterstock

Wells Fargo (WFC)

Earnings Report Date: Tuesday, Jan. 15, before market open

The story is different for Wells Fargo (NYSE:WFC). The bank’s long-running problems make it a bit of an outlier among bank stocks. Weakness from Wells Fargo could be a sign of changes in the underlying economy. But it also could be a sign of lost market share after years of negative publicity.

For Wells Fargo, the goal on Tuesday is simple: no bad news. It’s going to take time for Wells Fargo to rebuild its brand. Investors are aware of that — and until the end of last year, had shown remarkable patience in waiting for those improvements.

With sentiment improving, a decent quarter from Wells Fargo can boost the turnaround narrative. Any more unpleasant surprises, however, and the premium to book value per share of $36 may start to narrow — and WFC stock might have further to fall.

3 Earnings Reports to Watch Next Week -- How Will the Big Bank Stocks Fare?

Bank of America (BAC)

Earnings Report Date: Wednesday, Jan. 16, before market open

Bank of America (NYSE:BAC) earnings, meanwhile, feel like a blend of the stories at Wells Fargo and JPMorgan. From a broad market standpoint, BofA earnings, like those from JPMorgan Chase, need to be on point.

This is a company that already has made a notable effort to minimize risk. If risks show up anyway, that’s a sign that credit quality may be starting to deteriorate across the industry — a potential sign of trouble for the market as a whole.

But the report also will show whether Bank of America is paying a price for that strategy. I’ve long thought JPM and BAC were the top stocks among financials — but that might not seem the case after next week.

If BofA earnings lag amid that focus on risk, it could be a sign for more aggressive investors to look elsewhere in the space.

As of this writing, Vince Martin did not hold a position in any of the aforementioned securities.

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