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Financial ETFs Gain Despite Mixed Earnings

Sanghamitra Saha

The Q3 earnings season has been pretty moderate so far for the financial sector, which accounts for around one-fifth of the S&P 500 index. Three big banks have crushed estimates on both the lines while two reported mixed results and one missed on both counts.

Let’s take a look at major banking earnings releases in detail (read: Tap Revenue Growth With These ETFs & Dump Earnings Recession):

Big Bank Earnings in Focus

Better-than-expected underwriting business performance, rise in mortgage banking fees and higher bond trading income drove JPMorgan’s JPM third-quarter 2019 earnings of $2.68 per share, which outpaced the Zacks Consensus Estimate of $2.44. Net revenues as reported were $29.3 billion, up 8% from the year-ago quarter. Growth in balance sheet and higher fixed income markets results were the primary reasons for the improvement. These were partially offset by lower interest rates. Also, the top line beat the Zacks Consensus Estimate of $28.4 billion.

Wells Fargo WFC third-quarter 2019 earnings of 92 cents per share lagged the Zacks Consensus Estimate of $1.15 on lower net interest income. The figure also comes in lower than the prior-year quarter earnings of $1.13 per share. The quarter’s total revenues came in at $22 billion, outpacing the Zacks Consensus Estimate of $21.1 billion. The reported figure also comes in higher than the prior-year quarter’s tally of $21.9 billion.

Citigroup C delivered a positive earnings surprise of 1% in third-quarter 2019, backed by improved investment banking performance. Adjusted earnings per share of $1.98 outpaced the Zacks Consensus Estimate of $1.96. Also, earnings climbed 20% year over year. Revenues were up 1% year over year to $18.6 billion in the third quarter. The reported figure matched with the Zacks Consensus Estimate.

Improved capital market performance drove Bank of America’s BAC adjusted third-quarter 2019 earnings of 75 cents per share, which outpaced the Zacks Consensus Estimate of 50 cents. Also, the figure was up 14% from the prior-year quarter. Net revenues amounted to $22.8 billion, which marginally beat the Zacks Consensus Estimate of $22.2 billion. Also, the reported figure was up slightly on a year-over-year basis.

Goldman Sachs’ GS third-quarter 2019 results posted a negative earnings surprise of 4.8%. The company reported earnings per share of $4.79, missing the Zacks Consensus Estimate of $5.03. Further, the bottom-line figure compares unfavorably with earnings of $6.28 per share recorded in the year-earlier quarter. Goldman’s net revenues were down 6% year over year to $8.3 billion in the reported quarter. The revenue figure also lagged the Zacks Consensus Estimate of $8.6 billion.

Better-than-expected capital markets performance drove Morgan Stanley’s MS third-quarter 2019 adjusted earnings of $1.21 per share, which outpaced the Zacks Consensus Estimate of $1.10. Also, the figure increased 3% from the year-ago quarter. Results in the reported quarter excluded net discrete tax benefit.  Net revenues amounted to $10.03 billion, up 2% from the prior-year quarter. Also, the top line beat the Zacks Consensus Estimate of $9.68 billion.

Market Impact

Against this backdrop, investors might be wondering how financial ETFs like iShares U.S. Financial Services ETF IYG, iShares US Financials ETF IYF, Invesco KBW Bank ETF KBWB, Financial Select Sector SPDR XLF and Vanguard Financials ETF VFH have responded to the earnings releases. These funds have considerable exposure to the aforementioned stocks (see all Financial ETFs here).

Goldman and Morgan Stanley are not that prominent in the afore-mentioned ETFs, but are rather heavy on iShares U.S. Broker-Dealers & Securities Exchanges ETF IAI. Most of these ETFs put up a decent performance in the last ten days — which marked the peak of banking earnings releases. Signs of the U.S.-China trade truce gave cues of the steepening of the yield curve, pushing these ETFs higher (read: Guide to 10 Most-Heavily Traded ETFs).