Bank Stocks Kick of Q3 Earnings Season With a Bang

Bank Earnings Impress

Bank of America (NYSE: BAC) was one of the biggest winners of the first week of earnings reports. The bank reported earnings per share of 85 cents and revenue of $22.9 billion. Both numbers exceeded consensus analyst estimates of 71 cents and $22 billion, respectively.

Goldman Sachs (NYSE: GS) also reported big Q3 numbers driven by an 88% increase in investment banking revenue. Goldman reported $14.93 in adjusted EPS, beating analyst estimates by 46%. Revenue of $13.61 billion also far surpassed analyst expectations of $11.68 billion.

Citigroup Inc. (NYSE: C), Wells Fargo & Co. (NYSE: WFC), JPMorgan Chase & Co. (NYSE: JPM), and Morgan Stanley (NYSE: MS) also beat analyst estimates for Q3 earnings. In all, 13 S&P 500 financial sector stocks reported earnings last week, and 85% of those companies reported both earnings and revenue beats for the quarter. On average, financial sector earnings have beaten consensus analyst expectations so far by about 13%.

Hot Start to Earnings Season

Bank earnings dominated the first week of earnings season, but plenty of other companies reported as well. In fact, a total of 41 S&P 500 companies reported earnings last week, and roughly 2/3 of them (66%) have beaten analyst estimates on both revenue and earnings. These 41 companies have reported Q3 earnings that are 14.7% above consensus estimates so far.

Analysts are expecting these strong growth trends to continue throughout the remainder of the Q3 earnings season. Analysts are projecting S&P 500 earnings will grow 30% in Q3, while sales increased 15.1% compared to a year ago.

What To Watch

Strong bank earnings are a bullish signal about the health of the U.S. economy, but investors still have plenty of unanswered questions that may be addressed in the coming weeks as earnings season rolls on.

Through the first week of earnings season, it’s clear consumer demand in Q3 was relatively strong. Unfortunately, supply chain disruptions and inflation seem to be pressuring profit margins. Only about 8% of S&P 500 components have reported earnings so far, but net margins are currently tracking about 0.1% below consensus estimates, according to Bank of America. Most companies have said they expect supply chain disruptions to be a temporary phenomenon, but the duration and severity of these disruptions are creating uncertainty for investors. The degree to which disruptions negatively impact Q4 and 2022 guidance could have a major impact on stock prices in the near term.

Finally, the majority of S&P 500 companies that reported in the first week of earnings season have domestic-centered businesses. Upcoming earnings reports from U.S. multinational companies, particularly those with high exposure to China, should give investors a much clearer picture of the health of the global economy.