Shares of some of the major financial companies dropped on the heels of some dovish comments by some of the major banks on Monday.
Bank of America and JPM Morgan Chase announced that earnings in Q2 will be muted and believe that the total revenue earned for the 2018 year will be flat from the prior year. Daniel Pinto, the head of JP Morgan Chase announced this prediction for the year which helped to temper the run on stocks in financials and other companies.
Pinto provided some additional insight into the flat earnings prediction. He predicted that the core earnings of JP Morgan Chase would grow in the single digits, but that minor growth would be offset by other items. Pinto noted some positive headway in terms of growing interest rates that come on the back of rising interest rates from the Federal Central Bank, rising commodity prices, and improvement in the corporate credit business. The bank did have a major write-off of about $100 million on its fixed income unit.
The Head of Banking at Bank of America, Alastair Borthwick indicated that he couldn’t predict the remainder of the year, though he does see that companies tend to be gaining optimism for the macro economy, which is typically a good sign.
The flat revenue target came as a big disappointment to investors who were expecting that these stocks and companies would grow as a result of an overall growth of the economy. Other factors can also harm banks such as a decreased need to borrow money on the back of tax relief for businesses, which leave them flush with cash and decrease their need to borrow domestically to avoid repatriating foreign sourced cash.
Both Bank of America and JP Morgan Chase were down on the news. Both of these stocks decreased by approximately 5% on Tuesday. These bank stocks have been flat for 2018 after bouncing back from the lows in 2009 and recovering to prices that are close to their pre-crash highs.
Investors seem to be increasingly anticipating a pull back in these financial stocks and the lack of optimism and price reduction may end up being a positive thing for the larger market which may need to consolidate before reaching new heights.