Q3 Beats From Big Banks Fail To Boost Financial ETFs

The financial sector, which accounts for around one-fifth of the S&P 500 index, is now busy with Q3 earnings releases. The going is good so far, with most big banks crushing estimates on both lines (read: Fed to Hike in December? Buy Quality ETFs).

The backdrop should favor the banks along with the course of oil, the stance of the Fed and proposed policies of Trump. However, subdued inflation which may cause the Fed to act dovish and geopolitical risks are concerns for the banking sector. Let’s take a look at banking earnings in detail (read: Should You Buy Bank ETFs Before Earnings Release?):

Big Bank Earnings in Focus

JP Morgan (NYSE:JPM) reported earnings of $1.76 per share beating the Zacks Consensus Estimate of $1.67 in the third quarter of 2017. Also, the figure reflected a 11% rise from the year-ago period. Notably, the results included a legal benefit of $107 million. Managed net revenues of $26.2 billion in the quarter were up 3% from the year-ago quarter. Also, it compared favorably with the Zacks Consensus Estimate of $25.7 billion.

Wells Fargo (NYSE:WFC) earned $1.04 per share in Q3, in line with the Zacks Consensus Estimate. Including previously disclosed mortgage-related discrete litigation accrual of 20 cents per share, earnings came in at 84 cents per share, comparing unfavorably with the prior-year quarter’s earnings of $1.03 per share. The quarter’s total revenues were $21.9 billion, lagging the Zacks Consensus Estimate as well as the prior-year quarter figure of $22.3 billion.

Citigroup Inc.’s (NYSE:C) earnings per share of $1.42 for Q3 were ahead of the Zacks Consensus Estimate of $1.32. Earnings compared favorably with the year-ago figure of $1.24 per share. Revenues increased 2% year over year to $18.2 billion in the reported quarter, surpassing the Zacks Consensus Estimate of $17.7 billion.

Bank of America Corporation (NYSE:BAC)’s (NYSE:C) third-quarter 2017 earnings of $0.48 per share surpassed the Zacks Consensus Estimate of $0.46. Also, the figure was 17% higher than the prior-year quarter number. Net revenue came in at $22.1 billion, up 1% from the prior-year quarter and beat the Zacks Consensus Estimate of $22 billion.

Goldman (NYSE:GS) earned $5.02 per share in Q3, beating the Zacks Consensus Estimate of $4.31. Further, the bottom line witnessed 3% year-over-year improvement. Though the investment bank remains under pressure due to lackluster fixed-income trading activities on low volatility during the third quarter, a continued momentum in investment banking business benefited the bottom-line numbers. Goldman’s net revenues climbed 2% year over year to $8.3 billion in the quarter under review. Furthermore, revenues handily outpaced the Zacks Consensus Estimate of $7.6 billion.

Impressive performance of wealth management division and higher investment banking fees drove Morgan Stanley’s (NYSE:MS) third-quarter 2017 earnings of 93 cents per share, which handily outpaced the Zacks Consensus Estimate of 81 cents. The reported figure was 15% above the prior-year quarter. Net revenues amounted to $9.2 billion, a rise of 3% from the prior-year quarter. In addition, it surpassed the Zacks Consensus Estimate of $9 billion.

Market Impact

Investors, who have still pinned their hopes on a moderate earnings season, Trump’s promises for deregulation and faster Fed policy tightening, must be keen on knowing how financial ETFs like iShares U.S. Financial Services ETF IYG, iShares US Financials ETF IYF, PowerShares KBW Bank ETF KBWB, Financial Select Sector SPDR XLF and Vanguard Financials ETF VFH responded to the earnings releases. These funds have considerable exposure to the aforementioned stocks (see all Financial ETFs here).

ETF Performance

Most of these ETFs slipped in the last five days (as of Oct 17, 2017) – in the peak of the earnings season. Goldman has moderate exposure in the afore-mentioned ETFs, rather it is heavy on iShares U.S. Broker-Dealers & Securities Exchanges ETF (WA:IAI) , which also shed about 1.4% in the last five days (as of Oct 17, 2017) (read: Time to Buy Regional Bank ETFs?).

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