Early into the election victory of now-President Donald Trump, the “Big Four” bank stocks were one of the immediate beneficiaries. Bolstered by promises of fewer regulations, virtually the entire financial complex shot higher. With a tough economic environment that hindered lending services, the last thing bank stocks needed was more bureaucracy. Although a bit on the outspoken side, President Trump gave the industry the confidence it needed.
Click to Enlarge I’m not a mind reader, but if I was, I’d swear that JPMorgan Chase & Co. (NYSE:JPM) CEO Jamie Dimon is hedging our expectations.
In his annual letter to JPM shareholders, Dimon wrote that there is “something wrong” with our nation. Careful to not wade into ugly politics, the JPM head blasted ineffective policies that stymied economic growth.
Further, he criticized “low wage growth, high health-care costs and overcrowded prisons,” according to CNBC contributor Jeff Cox.
As expected, the CEO put a positive spin on the overall picture, particularly as it relates to JPM: “We believe the anticipated reversal of many negatives and the expectation of a more business-friendly environment, coupled with our sustained, strong business results, are among the reasons our stock price has done so well this past year”. The issue is whether that will be enough to satisfy potential buyers today.
Undoubtedly, JPM has advantaged the Trump rally well. But since the beginning of March, JPM is down 5%, reflecting the same weakness found in other bank stocks. Furthermore, for its upcoming Q1 report, JPM is expected to hit an earnings-per-share target of $1.52. This is nearly 21% higher than the EPS forecast for the year-ago quarter.
Interestingly, the last Q1 miss for JPM was in fiscal 2014. At that time, analysts expected an EPS target of $1.40, which was only 1% higher than the Q1 2013 target. With so much at stake, JPM has a very high wall to climb.
Bank Stocks to Watch: Bank of America Corp (BAC)
Click to Enlarge Compared to the other members of the Big Four, Citigroup Inc (NYSE:C) has largely kept its name out of the headlines.
While that’s a death sentence in Hollywood, for bank stocks, that’s almost always a blessing. These days, if a financial institution is splattered on the news, you can bet the house that something illegal occurred. C stock is almost boring, which few will complain about.
However, being relatively controversy free hasn’t translated to outstanding gains. True, C stock joined its Big Four brethren, gaining 19% in last year’s Trump rally. Unfortunately, this year is a completely different story. C stock mostly gyrated in a sideways channel, and is currently up only 0.5% year-to-date. It does happen to be trading above its 50-day moving average, but that status looks somewhat tenuous.
For its Q1 earnings report, C stock has an EPS target of $1.25. Against the year-ago forecast, the consensus has risen 21%. No doubt, that’s a hefty lift, but it’s within the normal range of optimism for major bank stocks. That’s the good news. The bad news is that C stock is bogged down with awful sales figures. Over the last six quarters, year-over-year revenue growth averaged losses of 6%.
Unless a miracle happens, C stock will again depend on cost-cutting measures to meet earnings expectations. The dilemma is that the Trump administration promised prosperity through growth, not through austerity. So no matter what, Citigroup faces a tricky situation.
Bank Stocks to Watch: Wells Fargo & Co (WFC)