The earnings season has just started, but already, we've had some pretty good news from the financial sector. Tomorrow, two financial companies among the 30 stocks in the Dow Jones Industrials (^DJI 0.69%) will start to weigh in with their results, as JPMorgan Chase (JPM 1.44%) and Goldman Sachs (GS 1.59%) both report earnings before the market opens. Dow investors might well be looking for both bank stocks to give better performances than originally anticipated, considering the results we've already seen from their peers.
JPMorgan Chase expects to release its earnings report at 7 a.m. EDT, with a conference call to follow at 8:30 a.m. EDT. For its part, Goldman Sachs will have a slightly later time schedule, with its earnings issued at 7:30 a.m. EDT and its conference call not beginning until after the market opens at 10:30 a.m. EDT.
What's in store for the Dow's financials?
For the most part, investors are nervous about the prospects for both companies. JPMorgan Chase investors expect a nearly 20% drop in year-over-year earnings per share, while Goldman Sachs could see earnings declines in the high teens. Both banks will almost certainly see revenue slide dramatically from year-ago levels.
Yet the reasons for the declines will involve different factors for the two banks. JPMorgan Chase has a much larger personal-banking presence in its business, and huge declines in mortgage activity have led to great fears about the Dow component's ability to attain overall growth. The other big banks that have reported have seen fairly strong results in other areas of consumer banking, with credit cards and other personal loans like auto loans helping to ease the blow of a tough mortgage market. If JPMorgan can match the performance of its peers on that front, then it could reassure investors that when mortgage originations hit bottom, the bank can start growing again.
Source: Goldman Sachs.
At the same time, both Goldman Sachs and JPMorgan Chase have exposure to various market- and trading-related businesses, and many of them have gone through tough times recently as well. JPMorgan Chase warned earlier that revenue from its Markets division would fall 20% compared to what it brought in a year ago, as clients trade less amid difficult conditions in the financial markets. Goldman Sachs investors expect similar problems in its market-making segment, where sluggish levels of market activity and volatility have limited the Wall Street giant's ability to take full advantage of its strong position in the financial industry. Competitors have reported difficulties in their respective trading operations, with the fixed-income and equity markets showing some of the weakest performance in light of an uncertain interest rate environment and a lack of volatility in stocks.
Financial stocks have the potential to move the Dow tomorrow, and it's important for JPMorgan Chase and Goldman Sachs to match up to the solid results its peer banks have put in. Otherwise, investors in the Dow Jones Industrials might well conclude that the average's banking components have lost part of their competitive edge against its most important rivals.
