Q2 Earnings Season: How US Banks Performed and What to Expect from S&P 500

S&P 500 Companies Set to Kick Off Second Quarter Earnings Season: US Banks Go First

The second quarter earnings season for the S&P 500 is about to start, with some of the largest US banks reporting their results this week. Investors and analysts will be closely watching the numbers and guidance from these financial giants, as they reflect the state of the economy and the impact of the pandemic, inflation and interest rates.

According to FactSet, the S&P 500 is expected to report a blended earnings growth rate of 64% for the second quarter, compared to a decline of 32.2% in the same period last year. This would mark the highest year-over-year earnings growth rate since Q4 2009, when the index reported a growth rate of 109.1%.

The strong earnings growth rate for Q2 2021 is partly due to a favorable comparison to Q2 2020, when many businesses were negatively affected by the Covid-19 lockdowns and restrictions. However, it also reflects the recovery and resilience of the corporate sector, as revenues and profits rebounded from the crisis.

Nine out of the 11 sectors in the S&P 500 are expected to report year-over-year earnings growth for Q2 2021, led by the energy sector with a growth rate of 683.8%. The energy sector is benefiting from higher oil prices, which averaged $66 per barrel in Q2 2021, compared to $28 per barrel in Q2 2020.

The other sectors with high earnings growth rates are industrials (261.6%), consumer discretionary (184.7%), materials (118.5%) and financials (114.5%). The only two sectors expected to report year-over-year earnings declines are utilities (-3.3%) and real estate (-0.4%).

In terms of revenues, the S&P 500 is expected to report a blended revenue growth rate of 19.6% for Q2 2021, compared to a decline of 9.2% in Q2 2020. This would mark the highest year-over-year revenue growth rate since Q3 2011, when the index reported a growth rate of 19.8%.

All 11 sectors in the S&P 500 are expected to report year-over-year revenue growth for Q2 2021, led by the energy sector with a growth rate of 101%. The other sectors with high revenue growth rates are consumer discretionary (45%), industrials (32.8%), materials (32%) and financials (18.5%).

The first sector to report earnings for Q2 2021 is the financials sector, which accounts for about 13% of the total market capitalization of the S&P 500. Some of the major banks that will release their results this week include JPMorgan Chase, Bank of America, Citigroup, Wells Fargo and Goldman Sachs.

The financials sector is expected to report an earnings growth rate of 114.5% and a revenue growth rate of 18.5% for Q2 2021, compared to declines of 51.7% and 3.6%, respectively, in Q2 2020.

The main drivers of the strong performance of the financials sector are:

• Higher net interest income, as interest rates rose slightly in Q2 2021 compared to Q2 2020.
• Lower loan loss provisions, as credit quality improved amid the economic recovery and stimulus measures.
• Higher trading and investment banking revenues, as market activity and deal-making remained robust.
• Higher wealth management and asset management revenues, as asset values increased due to the stock market rally.

However, some challenges and risks that could weigh on the financials sector are:

• Higher operating expenses, due to investments in technology, compliance and cybersecurity.
• Lower mortgage banking revenues, due to lower refinancing activity and tighter margins.
• Regulatory uncertainty, as the Biden administration and Congress could impose stricter rules and higher taxes on banks.
• Competitive pressure, as fintech companies and non-bank lenders offer alternative products and services to customers.

The second quarter earnings season will provide more insights into how well the S&P 500 companies have navigated the pandemic and its aftermath, as well as their outlook for the rest of the year. The market will be looking for signs of sustained growth, margin expansion and shareholder returns from these corporate leaders.