Third-quarter earnings reports have already been trickling in, but earnings season kicks into high gear this week with a deluge of updates from the financial services sector, the S&P 500’s second-largest sector allocation at a weight of nearly 16.4%.
Although the sector has delivered some solid showings in recent quarters, investors are not expecting much in the way of big upside earnings and revenue surprises from financials for the third quarter. Estimize believes third-quarter earnings per share growth for the financial services sector will be just over 4% while revenue growth is expected to be about 4%.
That leaves some room for potential, emphasis on “potential,” EPS surprises. On Tuesday, J.P. Morgan Chase (NYSE: JPM) and Wells Fargo (NYSE: WFC) report while Bank of America (NYSE: BAC) and Citigroup (NYSE: C) follow on Wednesday.
Those are four of the top-five holdings in the Financial Select Sector SPDR (NYSEArca: XLF), the largest U.S. sector ETF. That quartet of stocks combine for about 28% of XLF’s weight. Robust loan growth could be the catalyst for some third-quarter earnings beats by bank stocks.
Total loans and leases at U.S. commercial banks was 6.2% higher than they were year-over-year as of September 17, reports John Carney for the Wall Street Journal. Specifically, commercial and industrial loans have increased 12.1% year-over-year. Commercial real-estate loans rose 7.3%. Additionally, overall real-estate loans were up 2.5%. [Loan Growth Could Lift Bank ETFs]
Still, the sector’s expected third-quarter EPS growth exceeds only exceeds that of two sectors – telecom and utilities – while revenue growth is expected top that of four sectors, according to Estimize.