Market Insights: Themes to Look For As Q2 Earnings Season to Begin Friday – Banks

The second quarter of 2023 earnings announcements will begin on Friday as banks prepare to be the first group to kick off the Q2 season. The S&P 500 Bank Index reported a 4.1% return for the second quarter, underperforming the overall S&P which came in at 8.3%. Earnings expectations for the group are anticipated to lag prior estimates as both funding costs and interest rates are higher than the previous quarter. The FOMC raised the benchmark for the fed funds rate by 25bps during Q2 and in its last statement, left open the option for a July hike.

Citigroup (C), JP Morgan (JPM), State Street Corp (STT) and Wells Fargo (WFC) will report on Friday. Bank of America (BAC), Goldman Sachs (GS), PNC Financial Services (PNC), Bank of New York Mellon (BK) and Morgan Stanley (MS) will report on Monday.

While the obvious focus related to bank earnings revolves around the mixed credit picture, CRE is expected to receive heightened attention after Wells reported last month an additional $1Bn to its provisions to cover potential CRE losses.

Q2 Earnings Themes

As mentioned, earnings anticipation surrounding the tightening of lending standards will come to light as banks announce. Additionally, the consumer will be a theme of interest as the labor market remains tight, inflationary pressures linger, student loan payments resume and the debate over consumer excess savings levels continues. Artificial Intelligence is another theme that will be put to the test as companies will need to quantify their earnings and productivity successes to prove AI is more than just a hyped buzzword. Ultimately, the theme to once again take center stage will be guidance and corporate sentiment where the bullish view of anticipated improvement in estimate revisions vs the bearish expectation that 2H23 and 2024 estimates are too high, continues to be debated.