JPMorgan Chase, Wells Fargo and Citigroup kick off quarterly bank earnings early Friday. JPM stock, WFC and C are all nearing buy zones ahead of the banks' respective reports.
The worst of the bank panic appears to have subsided following the string of failures earlier this spring. Banks posted six of the 10 worst losses among S&P 500 stocks through early July. Still, financial firms look in better shape after all 23 institutions included in the Federal Reserve's annual stress test passed a hypothetical "severe" recession scenario in late June.
Customer deposits stabilized in recent months, but regulators note that commercial real estate loans could be the next weak point on balance sheets as commercial real estate prices are projected to decline. Morgan Stanley forecasts commercial property prices could fall as much as 40%, according to an April 4 research note, which was in line with the stress-test scenario. The firm did not include a timeline for the expected decline, but said new lending rates are likely to be 3.5 to 4.5 percentage points higher than current rates as commercial mortgages are scheduled for refinancing "in the next couple of years."
That burden will fall to small and midsize banks, which represent 80% of commercial real estate lending. The larger firms that passed the Fed stress test accounted for 20% of office and downtown commercial real estate loans.
Analysts expect strong net interest income growth due to sustained high interest rates. However, JPMorgan warned of slower lending and loan growth across large and regional banks later this year in an early-April research note.
JPM Stock: Record Quarterly Revenue
Dow Jones giant JPMorgan is coming off a strong quarter, posting record quarterly revenue of $38.35 billion for its Q1 results in mid-April.
Analysts expect the trend to continue with a fourth straight quarter of earnings and revenue growth for JPMorgan. FactSet analysts project earnings to leap 43% to $3.95 per share on 28% revenue growth to $39.36 billion.
Net interest income is seen spiking 39.8% to $21.14 billion.
JPM stock is trading in a buy zone for a flat base after surpassing the 143.37 buy point on June 14. Shares are holding above their technical moving averages and about 1.4% above their 10-day line.
JPMorgan leads the Banks-Money Center IBD industry group, according to IBD Stock Checkup. JPM stock has a 96 Composite Rating out of a best-possible 99. The Composite Rating combines various technical indicators into one easy-to-read score. Shares have a 92 EPS Rating. JPMorgan's relative strength line is off highs from the beginning of the year and has an 84 RS Rating.
JPM stock inched higher Thursday and pared gains to 0.5% to Wednesday. Shares have advanced 11% so far this year.
Stocks Run With Big Earnings, Nasdaq Rebalance Due
Wells Fargo
Wells Fargo topped expectations for its Q1 results, posting a 40% jump in earnings as revenue climbed 17%. For the second quarter, analysts expect earnings to bolt 58% to $1.17 per share after two quarters of decelerating growth. Revenue growth is projected to accelerate for the second straight quarter, surging 18% to $20.12 billion. Analysts expect net interest income to vault 25% to $12.83 billion.
WFC stock is trading in a cup base with a 48.84 buy point, according to MarketSmith. Shares could form a handle Wednesday just above the 200-day moving average, which would provide an early entry opportunity around 43.
WFC stock rose 1% to 43.71 Thursday and added 1.2% Wednesday. Shares climbed 5.9% year-to-date.
Citigroup
Citigroup earnings rose in Q1 after five straight quarters of declines, topping forecasts of an 18.8% drop. But analysts think it'll be a short-lived victory and see earnings plummeting 38.4% to $1.35 per share for Q2. Revenue is expected to dip 1.2% to $19.4 billion after four quarters of accelerating growth. Net interest income is seen rising 8.7% to $13 billion.
C stock is trying to find its way out of a long-term consolidation but is still trading below its major technical moving averages.
Citigroup stock edged up 0.6% to 47.68 Thursday after swinging 1.8% higher Wednesday. C shares have gained about 5.4% so far in 2023.
You can follow Harrison Miller for more stock news and updates on Twitter @IBD_Harrison
