Results from the big banks largely came in line with expectations, though Bank of America (BAC) did a little better and Wells Fargo (WFC) was a tad below expectations. We knew that improved net interest margins will help the profitability of the core lending business even though growth in loan portfolios was expected to decelerate further. Management teams blamed policy uncertainty out of Washington as a contributing factor to weakening loan demand, though loan growth at PNC Financial (PNC) likely offers favorable read-throughs for other regional operators that are on deck to release results this week.

No major surprises with respect to other areas of weakness like trading revenues, mortgages and credit cards. Credit card charge-offs are starting to increase across the board in the industry, as is typically the case at this stage in the credit cycle. All the players appear to be doing a good job with expense controls, which has been a key earnings driver over the last few years of flat net-interest margins, a by-product of super-loose Fed policy. But margins have started going up, which is helping offset the drags from other areas.

The bottom line on bank results is that they aren’t bad, but they aren’t great either. The stocks have responded negatively to the results because they had run up so much ahead of these earnings reports. The Zacks Major Banks industry, which includes all the big banks, has lost ground over the last few sessions, but is still up significantly since September 8th.

Finance Sector Scorecard

It is still fairly early, with results from only 6 Finance sector companies in the S&P 500 (out of 97 total) out already. But these 6 companies are the some of the largest in the entire index and account for 30.1% of the sector’s total market capitalization in the index. Total earnings for these 6 Finance sector companies are up +6.8% from the same period last year on +1.7% higher revenues, with 83.3% beating EPS estimates and 50% beating top-line estimates.

The chart below compares the growth pace (earnings and revenue) and proportion of positive surprises for these 6 banks with what we saw from this same group of companies in other recent periods.

What this shows is that the Q3 earnings and revenue growth pace is below what we saw from the same six banks in the preceding quarter as well as the 4-quarter average. The proportion of positive surprises is broadly the same trend.

Looking at Q3 earnings and revenue expectations for the sector as a whole, combining the reported actual results with the still-to-come estimates, Finance sector earnings are expected to be down -4.6% from the same period last year on +1% higher revenues. The chart below shows the sector’s Q3 earnings growth expectations contrasted with estimates for the following four quarters and actual results for the preceding two periods.

The sector’s earnings decline in Q3 will follow double-digit earnings growth in each of the two preceding quarters, as the chart above shows. Earnings growth is expected to be modestly positive for the banking industry, but the drag is coming from the insurance industry which has been hit hard by this recent run of damaging hurricanes.

The table below shows the sector’s Q3 earnings growth expectations at the medium-industry level contrasted with estimates for the following four quarters and actual results for the preceding three periods.

Please note that the Major Banks industry, of which JPMorgan, Wells Fargo and others are part, accounts for roughly 45% of the sector’s total earnings (insurance is the second biggest earnings contributor, accounting for about 25% of the total).

Q3 Earnings Season Scorecard (as of Friday, October 13, 2017)

We now have Q3 results from 32 S&P 500 members that combined account for 10.3% of the index’s total market capitalization. Total earnings for these companies are up +12.8% from the same period last year on +6.3% higher revenues, with 81.3% beating EPS estimates and 78.1% beating revenue estimates.

The charts below compare the Q3 results thus far from the 32 index members with what we had seen from the same group of companies in other recent periods.

This is still a fairly small sample of results, but growth is tracking a tad below what we had seen from the same group of 32 index members in the preceding quarter while companies are beating estimates at about the same rate.

The chart below shows the weekly calendar of earnings releases for the entire Q3 earnings cycle. As you can see, the reporting cycle really starts ramping up this week, with 178 companies reporting results, including 53 S&P 500 members.

Expectations for Q3

Total Q3 earnings are expected to be up +2.1% from the same period last year on +5% higher revenues. This would follow +11.1% earnings growth in 2017 Q2 on +5.5% revenue growth, the second quarter in a row of double-digit earnings increases.

Estimates for Q3 came down as the quarter unfolded, with the current +2.1% growth down from +6.3% at the end of June. The chart below shows how Q3 earnings growth expectations have evolved since the start of the quarter.

Please note that while Q3 estimates have followed the well traversed path that we have been seeing consistently over the last few years, the magnitude of negative revisions nevertheless compares favorably to other periods. In other words, Q3 estimates have come down, but they haven’t come down by as much.

The table below shows the summary picture for Q3, contrasted with what was actually achieved in Q2.

In terms of sector focus, the strongest growth in Q3 is coming from the Energy sector which benefits from easy comparisons. Excluding the Energy sector, the aggregate growth pace drops to +0.2% from +2.1%. The Conglomerate sector is the only other sector with double-digit growth rates. Earnings growth is also strong for the Technology sector, with total earnings for the sector expected to be up +9.7% on +6.7% higher revenues.

On the negative side, Q3 earnings are expected to be below the year-earlier level for 8 of the 16 Zacks sectors, with double-digit declines for the Transportation, Aerospace, Basic Materials and Autos sectors.

The chart below shows Q3 earnings growth expectations contrasted with what is expected in the following three quarters and actual results in the preceding 5 quarters. As you can see in the chart below, the growth pace has started decelerating from the double-digit level of the first two quarters of the year.

Note: Sheraz Mian manages the Zacks equity research department. He is an acknowledged earnings expert whose commentaries and analyses appear on Zacks.com and in the print and electronic media. His weekly earnings related articles include Earnings Trends and Earnings Preview. He manages the Zacks Top 10 and Focus List portfolios and writes the Weekly Market Analysis article for Zacks Premium subscribers.

Can Hackers Put Money INTO Your Portfolio?

Earlier this month, credit bureau Equifax announced a massive data breach affecting 2 out of every 3 Americans. The cybersecurity industry is expanding quickly in response to this and similar events. But some stocks are better investments than others.

Zacks has just released Cybersecurity! An Investor’s Guide to help Zacks.com readers make the most of the $170 billion per year investment opportunity created by hackers and other threats. It reveals 4 stocks worth looking into right away.

Download the new report now>>
 

Here is a list of the 178 companies including 53 S&P 500 and reporting this week.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Wells Fargo & Company (WFC) : Free Stock Analysis Report
 
PNC Financial Services Group, Inc. (The) (PNC) : Free Stock Analysis Report
 
Bank of America Corporation (BAC) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research