Dow Jones Industrial Average (DJIA) futures jumped 100 points in early trading Tuesday, pointing to a strong stock market open. But the party could end as Wall Street’s biggest banks strip down and report their third-quarter earnings today. If the numbers out of JP Morgan, Citigroup, and Goldman Sachs disappoint, today’s early rally could be wiped out.
CNBC panelists called it the “moment of truth” for Wall Street financials which are battling against a backdrop of declining interest rates and shrinking asset management fees.
“Morgan Stanley are in a businesses where their margins get cut every single quarter. It’s harder and harder for a Morgan Stanley or a Goldman Sachs” – Guy Adami, Director of Advisor Advocacy at Private Advisor Group.
Dow Jones Industrial Average (DJIA) futures kick-started Tuesday’s trading session on a positive note, mostly on news that a partial US-China trade deal is still on the table. But the real test will come as earnings reports begin to trickle in.
The overarching stock market sentiment towards today’s three big bank earnings is apathy. As CNBC’s Tim Seymour put it:
“I don’t think it’s a terrible story, it’s just not an extraordinary story.”
A number of headwinds weigh on Goldman Sachs, Citi, and JP Morgan going into the third-quarter earnings season. The Federal Reserve has slashed interest rates twice, putting pressure on Wall Street’s ability to generate interest income. The banks are also facing competition to lower money management fees in the face of zero-commission trading.
“Asset managers are seeing massive compression in terms of everything they do in terms of commissions and in terms of their market share, so I don’t think you’re gonna see great numbers out of Morgan Stanley” – Tim Seymour.
The big picture looks ugly too. Already in the grips of a technical earnings recession, analysts predict a third-straight quarter of earnings decline.
All eyes are on JP Morgan Chase and Goldman Sachs, both constituents of the Dow Jones Industrial Average, ahead of today’s earnings. But there is a flip-side to the story. Lower rates at the Federal Reserve may help spur new mortgage claims at the banks.
“With record low rates again you saw a lot of folks rushing to refinance in the corporate bond market… [And it’s] all very good for a mortgage business that was largely dead in the first half of the year” – Tim Seymour.
With expectations so low, it won’t take much for a strong performance to rally investors behind the Wall Street banks if they beat estimates. JPMorgan Chase, Citigroup, and Morgan Stanley report before the bell today.