The financial sector is one of the best performers this year thanks to a reviving banking sector in the U.S. In fact, the recent rally in the equity market was mostly supported by financial stocks.
Banks are trying to reclaim their past glory, leaving behind the disgraceful series of hedging losses and scandals, and have rebounded over 200% in the last four years. Sound balance sheets, an improved asset market and lower loss provisions were the major contributors to this advancement, though a lot still needs to be done to reach the pre-crisis levels.
Recent Earnings in Focus
The star performance by the financial sector in the second quarter was highlighted by a beat ratio of 76.9% for earnings and 61.5% for revenues (read: 3 Bank ETFs Leading the Pack this Earnings Season).
Total earnings for the sector went up 30% on 8.5% higher revenues in the second quarter. In fact, if we take away finance from the set of all sectors, the growth picture becomes feeble in the second quarter on a sequential basis.
Now, let’s see how things are shaping up for this quarter’s announcements:
The sector seems to have lost some of its shine as compared to the second quarter. For this season, the financial sector is expected to expand 3.9% on the bottom line buy suffer 6.3% on the top line.
Needless to say, the figures are quite underwhelming sequentially. Tougher comparisons are deemed responsible for this slowdown.
Q3 Earnings So Far
So far, as much as 45.5% of the Finance sector’s total market capitalization is out with results. Total earnings from the sector are up 17.9% on 0.5% lower revenues. Of the pack, 63.3% of the companies surpassed earnings expectations and 36.8% came ahead of top-line estimates.
The mixed bag response in the sector so far can be validated by the latest earnings reports from sector bellwethers including Wells Fargo, JP Morgan Chase & Co. (NYSE:JPM), Bank of America Corp. (NYSE:BAC) and Citigroup (NYSE:C).
While JP Morgan missed the Zacks Consensus Estimates on both lines, Wells Fargo beat the bottom line but fell shy of the top line. BofA came ahead of the bottom-line estimate but posted in-line revenues.