Earnings season for banks begins Oct. 15, when J.P. Morgan Chase, Citigroup and Wells Fargo are scheduled to announce their third-quarter results, with Bank of America following up the next day.
Banks’ earnings are expected to have held up well despite low interest rates. Still, the Federal Reserve’s policy change means difficult times ahead for most banks.
Standing out among dismal sectors
Here are expected changes in earnings per share for the 11 sectors of the S&P 500 SPX, +0.91%, based on weighted aggregate consensus earnings estimates among analysts polled by S&P Global Market Intelligence:
S&P 500 sector Expected change in Q3 EPS from year-earlier quarter Health Care 1.81% Financials 1.73% Industrials 0.94% Communication Services 0.07% Consumer Discretionary -0.01% Consumer Staples -0.54% Utilities -3.77% Information Technology -8.56% Real Estate -14.34% Materials -20.65% Energy -31.58% S&P 500 Index -4.11% S&P Global Market Intelligence
The financial sector is expected to rank a close second for earnings growth. Considering the boost to earnings per share from stock repurchases, that is unimpressive.
Eroding profit margins will push U.S. into recession in 2020,
Stephen Gallagher stands out among Wall Street economists because he’s one of the few willing to go on the record to forecast a recession in 2020. Also because he’s not blaming it on tweets, Trump or tariffs.
The chief U.S. economist for Societe Generale also stands out because he’s just won MarketWatch’s Forecaster of the Month contest, which we designed to recognize the most accurate U.S. economic forecasters.
Gallagher’s recession story is a relatively simple one: U.S. recessions are typically preceded by an erosion in corporate profit margins, or profit per dollar of revenue. Costs generally rise near the end of the cycle while sales flatten out.
Profit margins for U.S. nonfinancial corporations peaked in 2015 at 15.2% of gross value added, and have fallen to 10.9% in the latest quarter.
Gallagher has been warning about a slow squeeze on profits since 2016.