U.S. banks kick off second-quarter earnings and it’s not looking pretty. Yes, higher interest rates are helpful but economic growth is also slowing.
So while Refinitiv I/B/E/S estimates show overall S&P 500 earnings growing an annualised 6% in Q2, financials are expected to rack up a 20% drop in earnings.
Much of that decline stems from worsening outlooks for loan losses, as interest-rate rises increase the risk of borrower defaults. Accounting standards require banks to factor macro-economic views into loss provisions, and thus results.
Fee income could stutter, too, brokerage Wedbush predicts, citing pressure from mortgages and capital markets revenue.
Morgan Stanley and JPMorgan kick off earnings Thursday, followed by Citi, State Street and Wells Fargo the next day.
Overall, Q2 results should shed light on the outlook for profit margins, input costs and hiring. And listen out for what company bosses say about a potential recession.