December 7, 2022

Markets await Q1 earnings reports from major banks

This morning we expect the first quarter earnings season to heat up next week. After a few weeks of economic data detailing recent and current levels of inflation and employment, this week has been a bit of a break. It has also become a bit rudderless, with few anecdotal stories in the stock market – like Elon Musk buying a big chunk of Twitter (TWTR) – push and pull market sentiment.

As at the heart of any earnings season, the big banks will be among the first to report first quarter figures. According to Zacks Director of Research, Sheraz Mian, in his latest Earnings Trends article this week, all major banks, including JPMorgan Chase (JPM), Bank of America (BAC), Citigroup (VS) and Wells Fargo (WFC), experienced lower revisions prior to reports. This is especially true with Citi, which has greater exposure to Russia.

Beyond banks, we expect energy companies to lead the earnings season; in fact, it may be the energy sector that pulls the first quarter into positive territory overall, in the end. Rising oil and gas prices, again due to the Russian invasion of Ukraine, have passed on the price increases to consumers who inject gasoline into their automobiles. Aside from the housing market, energy has been the biggest beneficiary of falling inflation metrics of late.

Construction, like energy and housing, also saw upward revisions ahead of the Q1 earnings release. This is based in part on the pent-up demand for housing dating back to the early months of the pandemic and now the post-Covid outlook (assuming we are truly “post-Covid”, but that’s another story). Higher two-year savings rates from the pandemic have also given the consumer additional purchasing power, although this is quickly eaten up by inflation, giving us less bang for our buck.

First quarter offsets will also be difficult, especially when we look at Q1 2021 numbers versus Q1 2020. The days of easily leaping year-over-year revenue gains are over; while we may see some positive earnings surprises in the first quarter, these would likely be more the result of reduced expectations ahead than unforeseen robust sales. And, as Sheraz points out in his article on revenue trends, overall revenue estimates continue to rise.

Clearly, the war in Ukraine is compounding the supply chain problems that economists thought they would have otherwise solved by now. The war also darkens the global economic outlook, especially in Europe. Certainly, the more the battles drag on, the more the economic conditions of recession manifest themselves, even possibly in the United States.

But for now, the good news is two-fold: employment levels are back to all-time highs, and even some slight interest rate activity from the Fed is already showing in things like mortgage data. The odds of a “soft landing” for the US economy increase as long as causal measures behave as expected. The first-quarter earnings season will help clear the brush from our economic outlook, and if the Fed’s expected 50 basis point hike in a few weeks helps dampen inflation in the near future, perhaps our expectations could also improve.

The infrastructure stock boom will sweep America

A massive push to rebuild America’s crumbling infrastructure will soon be underway. It is bipartisan, urgent and inevitable. Billions will be spent. Fortunes will be made.

The only question is “Are you going to get into good stocks early when their growth potential is greatest?”

Zacks released a special report to help you do just that, and today it’s free. Discover 5 special companies looking to make the most of building and repairing roads, bridges and buildings, as well as transporting goods and transforming energy on an almost unimaginable scale.

Download FREE: How to Leverage Trillions of Dollars in Infrastructure Spending >>

Click to get this free report

Bank of America Corporation (BAC): Free Stock Analysis Report

Wells Fargo & Company (WFC): Free Inventory Analysis Report

JPMorgan Chase & Co. (JPM): Free Stock Analysis Report

Citigroup Inc. (C): Free Stock Analysis Report

Twitter, Inc. (TWTR): Free Stock Analysis Report

To read this article on, click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.