Q1 earnings season: The banks

This week the key Q1 Earnings season kicks of in earnest with many of the major US banks reporting.  The Q1 earnings is seen as key for setting the tone of company performances as the post-pandemic timeframe gains momentum as the vaccination rate continues to climb and states continue to open up. Overall the US equity markets closed at all-time highs again last week with a strong close on Friday, just shy of those highs. The USA500 closed at 4,123, the USA100 at 13,800 and the USA30 at 33,751.

The Financial sector has been a major beneficiary of the “reflation” trade and the $1.9 trillion Stimulus bill and the proposed $2.25 trillion Infrastructure Bill all likely to benefit the banking sector in particular. So far 20 of the S&P 500 companies have reported and on average they have beat expectations by 11%, which is over 1.5 times above their average over the last 3 years.  Overall expectations for the S&P 500 is for Q1 Earnings to grow by a a very significant 25%, which would be the best performing quarter since President Trumps tax cut inspired q1 2018. Additionally, what is more encouraging is that estimates have been rising as the Earnings Season arrives, normally they start to decline as the data starts to emerge. Back in late February / early March consensus was for 22% Q1 growth. This enthusiasm is tempered by the high valuations the the S&P500 is running currently; forward earnings are currently projection at 22.3 times whereas in a normal economic cycle the historical average is 15 time earnings, hence the scepticsim over further growth from here. However, overall 2021 earnings growth remains very robust and is penciled in at 26.5 % versus a -12.6% decline for 2020. Another key drag on future growth in 2021 is President Biden’s proposed increase in Corporation Tax to 28% from 21%, estimates suggest that this could reduce earnings by 7.4% for 2021.

Whatever the out come, much is anticipated from the numbers and tomorrow (April 14) JP Morgan are first up at 12:00 GMT with

Earning season kicks off significantly tomorrow, (April 14) with big banks leading the charge. Reports are due from JP Morgan Chase, Goldman Sachs, Wells Fargo and First Republic Bank. Later in the week there will be data from Bank of America, Citigroup, BlackRock, U.S. Bancorp, Truist Financial, Morgan Stanley, HDFC Bank, PNC Financial, Bank of New York Mellon, State Street, Citizens Financial, Ally Financial.