We are in early innings of the first quarter earnings season and S&P 500 growth is currently pegged at -2.6% on earnings per share of $26.89, a relatively low bar in our opinion. Finally, estimates began to move in a positive direction after bottoming on Thursday (April 16th) at -3.3%.
Analysts got comfortable with growth contracting in the 3.1% to 3.3% range early in February, despite oil prices that remained erratic and a continued rise in the dollar. Thus, estimates showed little movement between February and Thursday.
- This week, it was all about the banks, and that has been the primary game changer for earnings growth. Goldman Sachs and JPMorgan were standout reporters as volatility in currency trading helped to drive outsized growth in their trading businesses and investment banking fees reached new highs on the heels of increased M&A activity.
- Looking at the sector overall, loan growth has been weak, with strength in commercial loans offset by weakness in consumer lending.
- The major negative in the quarter has been the further decline in net interest margins. Both regional and money center banks had net interest margins decline slightly more than we expected in the first quarter. An improving interest rate environment will be necessary for the banks to see advances in this area, but many banks don’t expect the Fed to increase rates until later this year.
- Encouragingly, many CEOs provided positive commentary regarding their business and the direction of the economy.
- Financial sector earnings estimates are now moving upward, thanks to these better-than-expected results. Growth bottomed earlier last week at 10.6% before the bank results were released and now stands at 14.5%. Banks continue to be a key contributor for the sector with growth of 30.4%, followed by REITs with 16.1% growth.
Q1 Financials Earnings Growth by Subsector
As a key indicator of the economic environment, we will keep a close eye on the sector as the earnings season unfolds.