Pro Perspectives 10/12/23



Please add to your safe senders list or address book to ensure delivery.

October 12, 2023

The inflation number is behind us, with no material surprise.

And earnings season will kick off tomorrow, with the big banks.

They will be reporting on the third quarter, where they were operating in an economy that was hot, growing at about a 5% annualized pace (based on the Atlanta Fed’s GDP model).

With that, the contraction in S&P 500 earnings should be behind us.  But, as usual, the estimates on Q3 earnings look quite conservative.  FactSet is still looking for a 0.3% decline in S&P 500 earnings.  That sets up for positive surprises.

To set the tone for earnings season, JP Morgan, the biggest bank in the country, will report before the open tomorrow.

JPM is coming off a record revenue and earnings quarter in Q2.  And they’ve managed to produce that while still stocking away billions of dollars for loan loss reserves.  In Q4 of 2019, prior to the pandemic, they had $13 billion in loan loss reserves.  They now have $22 billion set aside.  This is a war chest of capital that can be moved to the bottom line (i.e. turned into earnings) at their discretion.

But releasing any of those reserves is unlikely to happen tomorrow, given the uncertainty surrounding the Middle East.

Still, Wall Street estimates have JPM growing revenue by 21% year-over-year, and growing EPS by 27%.