A Big Bank Q3 Preview: Can Earnings Help Stocks Break Out Of Lackluster Phase?

Corporate earnings have been on a roll: S&P 500 earnings are set to grow 19.2 percent year-over-year in the third quarter, marking the third-highest quarterly earnings growth since the first quarter of 2011, according to the weekly Earnings Insight report by Factset. 

Given the ongoing earnings momentum, here's a look at what's in store for big banks.

Factset projects that the financial sector will report the second-highest earnings growth of all S&P 500 sectors at 33.8 percent. That said, shares in the sector have underperformed the broader market, presenting a buying opportunity.

Key Metrics

Citigroup Inc C

• Earnings date: Friday, Oct. 12
• EPS estimate: $1.69 Vs. $1.42 year-ago
• Revenue estimate: $18.46 billion vs. $18.17 billion last year 
• Stock performance year-to-date: 1.9 percent loss

Wells Fargo & Co WFC

• Earnings date: Friday, Oct. 12
• EPS estimate: $1.17 vs. 84 cents year-ago
• Revenue estimate: $21.9 billion vs. $21.93 billion last year
• Stock performance YTD: 9.9 percent loss

JPMorgan Chase & Co. JPM

• Earnings date: Friday, Oct. 12
• EPS estimate: $2.26 vs. $1.76 year-ago
• Revenue estimate: $27.54 Billion Vs. $26.2 Billion Last Year
• Stock performance YTD: 9.6-percent gain 

Bank of America Corp BAC

• Earnings date: Monday, Oct. 15
• EPS estimate: 62 cents vs. 48 cents year-ago
• Revenue estimate: $22.67 billion vs. $22.08 billion last year
• Stock performance YTD: 2.9-percent gain

Morgan Stanley MS

• Earnings date: Tuesday, Oct. 16
• EPS estimate: $1.02 vs. 93 cents year-ago
• Revenue estimate: $9.57 billion vs. $10.11 billion last year
• Stock performance YTD: 10.7-percent loss

Goldman Sachs Group Inc GS

• Earnings date: Tuesday, Oct. 16
• EPS estimate: $5.41 vs. $5.02 year-ago
• Revenue estimate: $8.4 billion vs. $8.33 billion last year
• Stock performance YTD: 11.7-percent loss

Related Link: JPMorgan More Bullish On Credit Cards Ahead Of Q3 Earnings

Investment Banking Revenues Likely Softened

The investment banking business may have taken a hit from a reduction in equity underwriting volumes and total debt origination volumes, Forbes reported, citing data from Thomson Reuters.

Equity underwriting is likely to have been impacted by the uncertain outlook for the global equity markets in the wake of the looming threat of a trade war between the U.S. and China and its ramifications for the global economy. Meanwhile, debt originations suffered as companies were skeptical of tapping the global market in an environment of monetary policy tightening.

Higher Fed Rates To Boost Net Interest Margins

Having embarked on the path of monetary policy normalization, the Federal Reserve already hiked rates three times this year and is on track to effect another hike before the end of the year. Higher rates tend to perk up net interest margins, or the spread between the interest earned on loans and the interest paid for deposits.

Trading Revenues A Mixed Bag

The U.S. equity market had a fairly decent run in Q3, with the S&P 500 index advancing 7.2 percent during the three-month period. Mid-cap as well as small-cap stocks also gained during the quarter, although the gains were more moderate.

The weakening of the U.S. dollar pressured dollar-denominated commodities.

Earnings from fixed-income trading may have suffered from a rise in bond yields. The benchmark 10-year U.S. treasury note ended Q3 with a yield of 3.06 percent after rising to quarterly high of 3.1 percent.

Expense Management, Lower Tax Rate Could Cushion Bottom Lines

Notwithstanding the mixed implications for the top line, banks could still make good thanks to prudent expense management and a lower effective tax rate, making bottom-line beats likely. 

As the market enters a seasonally stronger period, will the Q3 earnings scorecard bring sluggish bank stocks out of their slumber? The answer will start to be revealed beginning Friday. 

Related Link: 2 Pros Debate: What's Next For Bank Stocks?