Disappointing start to earnings sees a run on banks

Although investors demonstrated jaded optimism for a positive earnings season after miner Alcoa kicked things off with better-than-expected results last week, the financial sector has failed to inspire similar sentiment and is expected to see a 0.6% year-on-year drop. 

Trader looks carefully at screen
Source: Bloomberg

The major banks that reported last week missed many analysts’ estimates, with a number of falls in revenue and some earnings per share figures lower than expected for the fourth quarter. First to report was JP Morgan Chase, which fell 3.3% to $56.91. The next day, Citigroup and Bank of America released their results, falling 2.1% to $48 and 2.8% to $15.59 respectively. Finally, we saw Goldman Sachs continue the banking slide on Friday with their share price 1% down to $176.73.

The combination of these disappointing figures with a global economic decline spreading through the market seems to have left investors troubled. Stock prices for these high profile banks took an average hit of over 10.3% from their 12-month highs that were recorded in December, as investors began selling out at what they now see as ‘inflated’ prices, especially after the Swiss franc decision last week.

A slowdown in profits for the big banks is adding to the uncertainty in the market, caused by an expected 20% fall in earnings for energy companies following a traumatic six months for oil. Both oil and copper prices have plunged lately, with aluminium set to follow suit, which doesn’t bode well for corporate earnings still to come.

Trading activity at IG

Our shares desk has mostly seen buyers of US banks leading into the earnings season, as retail investors must have been optimistic on the outcomes, expecting promising figures after several months of volatility. Following the announcements so far, some clients were stopped out on the sell side but, on the whole, investors seem to be holding their positions and even adding to any existing positions they hold with us.

Goldman Sachs

Post-announcement we had net buyers of about 4500 shares, but negligible activity in the days prior. The recent fall may look like a bargain to some clients, but the $8 billion bonus pay out won’t please the majority of taxpayers.

Citigroup and JPMorgan

As their stock has continued to fall following results, we have seen net sellers which are made up mostly of sell stops. However, before results we had a much bigger pool of buyers. Losing $150 million on CHF currency swings probably scared a few traders off.

Bank of America

This was the most popularly traded stock following the earnings report; we have seen net sellers of over 700,000 shares, the majority of which were natural flow and not sell stops. In comparison to just 20,000 share net buyers, this indicates nervousness among investors regarding the bank’s reporting season.

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