For Immediate Release

Chicago, IL – July 12, 2021 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes JPMorgan Chase & Co. JPM, Bank of America Corporation BAC, Citigroup Inc. C, Costco Wholesale Corporation COST and Oracle Corporation ORCL.

Previewing Q2 Big Banks Earnings

The large money-center banks that will kick-off the 2021 Q2 earnings season for the sector this week have lost some altitude over the last few weeks, but have otherwise enjoyed an amazing run this year, with these stocks handily outperforming the broader market.

JPMorgan and Bank of America will report June-quarter results before the market’s open on Tuesday (7/13) and Wednesday (7/14), respectively.

With respect to the reserve releases, the group has already released more than 42% of the cumulative reserves built in the wake of the pandemic. It is reasonable to expect further reserve releases in the Q2 reports, driven by a combination of improving macroeconomic outlook and stable credit market conditions.

We expect continued momentum along the trends set in 2021 Q1, with the core banking business still reporting weak loan demand, particularly on the C&I (commercial and industrial) side, partly offset by gains in auto and credit card loans, as suggested by Fed data. Net interest margin likely improved in Q2, reflecting higher long-term yields during the period that have lost some ground in recent days.

A brief comment on the recent pullback in long-term treasury yields is in order here, as the yield weakness has been the big driver of bank stocks’ recent pullback following a stellar earlier run.

The question in the marketplace whether this yield weakness is reflective of the bond market’s outlook for economic growth and inflation or merely technical phenomenon that will dissipate over the coming months is hard to conclusively answer at this stage. That said, we lean more towards the latter explanation (technical bond market reasons) as we see the economic outlook as robust today as it was a few weeks back.

While we don’t expect much on the core banking side, we do expect strong numbers in the capital markets business, particularly on the investment banking side, while trading revenues are faced with tough comparisons to the year-earlier period. Recent management commentary from JPMorgan suggests that 2021 Q2 trading revenues could be down almost -40% on a year-over-year basis, with the investment banking business enjoying a record run.

The decline at Citigroup is expected to be a bit better, but the trend overall for the group is expected to be of significant year-over-year declines, offset by strong gains on the advisory side (M&A, IPOs, etc.). 

As such, the overall set up for bank earnings remains positive, with the stocks likely reversing their recent interest rate-centric weakness.

For the Zacks Major Banks industry, which includes these major banks and accounts for roughly 45% of the Finance sector’s total earnings, Q2 earnings are expected to be up +190.8% on -4.8% lower revenues. This would follow +182.5% earnings growth on +1.8% higher revenues in the preceding period (2021 Q1). Easy comparisons to the year-earlier period when the banks booked huge loan-loss reserves is the biggest driver of the +190.8% year-over-year earnings growth for the group.

For the Finance sector as a whole, total Q2 earnings are expected to be up +94.3% on +3.1% higher revenues.

The market knows that the eye-popping earnings growth pace for the group is mostly due to easy comparisons. But the sector’s Q2 earnings are expected to be above the pre-Covid 2019 Q2 period by +6.4%.

What it will be looking for are trends on the margin front, particularly given the expected gains in auto and credit card loan balances. It will also be interesting to see management teams’ views on the aforementioned interest rate outlook question.

What’s Expected for 2021 Q2?

Total Q2 earnings for the S&P 500 index are currently expected to be up +62.2% from the same period last year on +18.2% higher revenues. This would follow the +49.3% earnings growth on +10.3% higher revenues in 2021 Q1. Estimates have steadily gone up in recent months, with the current +62.2% growth rate up from +50.6% at the start of the quarter on April 1st and +41.6% at the start of January.

A big part of the unusually strong earnings growth expected in the Q2 earnings season is due to easy comparisons to last year’s Covid-hit period. But as we have been consistently pointing out, not all of the growth is a result of easy comparisons.

Given how strong earnings surprises turned out to be in the preceding reporting cycle (2021 Q1), the final earnings growth tally for 2021 Q1 could be as high as +80%.

2021 Q2 at $395.3 billion is +62.2% above the Covid-hit $243.8 billion tally achieved in 2020 Q2. You can also see here that 2021 Q2 is +9.9% above the comparable pre-Covid 2019 period.

To the extent that this growth outlook can improve as we move into the back half of 2021 will determine whether the overall earnings picture

Key Reports This Week

The Q2 reporting cycle will really get going as JPMorgan and the other major banks come out with their fiscal June-quarter results this week (JPM reports before the market’s open on Tuesday, July 13th). But we (and other data aggregators) count the start of this and other earnings season(s) a little differently. From our standpoint, the Q2 reporting cycle got underway with companies reporting results for their fiscal quarters ending in May.

We have already seen such May-quarter results from 18 S&P 500 members, including Costco, Oracle and others. Companies with fiscal quarters ending in June will start reporting results this week and we have 22 S&P 500 members on deck to report results this week.

We are off to a great start with the 18 S&P 500 members that have reported results already. Total earnings for these 18 companies are up +102.8% from the same period last year on +20.9% higher revenues, with 83.3% beating EPS estimates and 88.9% beating revenue estimates.

It is too early to draw any conclusions from this very small sample of results. But for what it’s worth, this is a better performance from these 18 index members than we have seen in the recent past.

For a detailed look at the overall earnings picture, including expectations for the coming periods, please check out our weekly Earnings Trends report >>>>Q2 Earnings Growth Reflects More than Easy Comparisons

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