Investors will focus on falling profits, a more dovish Federal Reserve and lower...
NEW YORK - Investors will focus on falling profits, a more dovish Federal Reserve and lower interest rates as major U.S. banks kick off what analysts expect to be the first quarter of contracting corporate earnings since 2016.
In the wake of the Federal Reserve’s cautious shift due to signs of softness in the U.S. economy and the subsequent drop in 10-year Treasury yields, S&P 500 banks are seen posting year-on-year first-quarter earnings growth of 2.3%, down from 8.2% forecast six months ago, according to Refinitiv data. Slowdown jitters have also hit 10-year Treasury yields. The benchmark bond’s yield hit a 15-month low in the first quarter, flattening the yield curve and narrowing the gap between the interest banks pay depositors and the interest they charge consumers, which is bad news for profits.
Since October, analysts have drastically lowered their expectations for S&P 500 earnings in 2019, with first-quarter estimates dropping from 8.1% growth to a year-over-year decline of 2.2%. That would mark the first quarter of negative growth since the earnings “recession” that ended in 2016. “Within financials, the industry that’s been hit hardest is capital markets,” said Tajinder Dhillon, senior research analyst at Refinitiv on London. “Those downward revisions have intensified over the last 90 days. Of the big 6 banks, Goldman Sachs, Morgan Stanley and JPMorgan have seen the biggest declines” in first-quarter earnings estimates.
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