After the first round of bank earnings this morning, next week kicks off with a string of more reports from the financial
sector. Bank of America Corp (NYSE: BAC)
reports before the open on Monday, Apr. 16, Goldman Sachs Group Inc (NYSE: GS) reports before the open on Tuesday, Apr. 17, and Morgan Stanley
(NYSE: MS) reports before the open on Wednesday, Apr. 18.
There have been several tailwinds the banks have enjoyed in recent quarters: Economic growth in the U.S. and abroad has remained
strong, U.S. tax reform was passed, the Fed has continued to hike rates, and steps to deregulate aspects of the financial industry
have moved forward.
When JPMorgan Chase & Co (NYSE: JPM)
reported this morning, CEO Jamie Dimon said in a statement that “the global economy continues to do well and we remain optimistic
about the positive impact of tax reform in the U.S., as business sentiment remains upbeat, and customers benefit from job and wage
growth.”
Volatility has returned to more normalized levels in Q1 2018 amid concerns among investors and analysts regarding trade wars and
geopolitical tensions, combined with possible sector rotation and other factors. The S&P 500 (SPX) moved 1 percent or more on
23 trading days in Q1 2018, according to Reuters.
To put that into perspective, that’s already three times more than all of 2017. Year-over-year declines in trading revenues in
fixed income, commodities, currencies and equities pressured results at most of the major banks throughout 2017. Many analysts are
expecting mid- to high-single digits increases in trading revenue at the big banks compared to last year.
M&A activity and IPOs have also picked up in 2018 compared to 2017, providing investment banks with more potential
opportunities to earn advisory and underwriting fees. In the first three months of the year, there have been 3,774 M&A deals
worldwide that totaled $890.7 billion, a 17-year high, according to research firm Mergermarket. 51 companies have gone public on
U.S. exchanges and raised $17.2 billion through Apr. 11, up slightly from the 37 IPOs that raised $16.2 billion over the same
timeframe in 2017, according to Dealogic.
Bank of America Earnings and Options Activity
As interest rates have ticked higher, BAC management has increased their guidance for net interest income—the difference between
interest earned on the bank’s assets and what it has to pay out on its liabilities. Management previously said they expect a $3.3
billion increase in net interest income with each 100 basis point (1 percent) increase in interest rates.
BAC COMPANY PROFILE. Consumer banking is BAC’s largest division, closely followed by its corporate and commercial
banking. TD Ameritrade clients can analyze potential revenue drivers of a stock on the Fundamentals tab on the thinkorswim® platform. The
Trefis price estimate vs. current market price is as of 4/12/18. Trefis information and estimates used in Company Profile
are provided by Insight Guru, a separate and unaffiliated firm. Not a recommendation. For illustrative purposes only. Past
performance does not guarantee future results.
For Q1, BAC is expected to report adjusted EPS of $0.58, up from $0.41 in the prior-year quarter, on revenue of $22.9 billion,
according to third-party consensus estimates. That’s the highest EPS estimate for the company over the past eight quarters, while
the revenue estimate is just shy of the $23 billion BAC generated in Q2 2017.
Around BAC’s upcoming report, options traders have priced in about a 2 percent potential stock move in either direction,
according to options data on the thinkorswim®
platform. As of this morning, implied volatility was at the 49th percentile.
In short-term trading at the Apr. 20 monthly expiration, calls have been active at the 31 strike price, with volume of 38,215
contracts during yesterday’s session. Volume has been lighter for puts and spread out across a range of strikes.
Further out at the May 18 monthly expiration, the 31-strike call and the 32-strike call have been heavily traded, with volume of
7,981 and 10,296 contracts during yesterday’s session, respectively. Again, volume has been lighter on the put side and spread out
across a range of strikes.
Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over
a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined
price over a set period of time.
Goldman Sachs Earnings and Options Activity
Some of the bigger news from GS was in early March when the company announced that Harvey Schwartz, President and Co-Chief
Operating Officer, would be retiring Apr. 20, and that David Solomon will serve as sole President and Chief Operating Officer. The
news comes amid reports from the Wall Street Journal that long-time CEO Lloyd Blankfein is preparing to retire.
On Tuesday, GS is expected to post adjusted EPS of $5.67, compared to $5.15 in the prior-year quarter, on revenue of $8.9
billion, according to third-party consensus estimates. The revenue estimate is a big jump from GS’ Q4 2017 report when
analysts were expecting $7.6 billion on the top line. The earnings estimate is also a big jump from last quarter’s estimate of
$4.90 per share, however, it is in line with the $5.68 GS reported in Q4 2017.
GS SINCE START OF 2018. Shares of GS are up 1.53 percent on the year as of, 4/12/18 slightly beating the S&P
500 (SPX). The stock has hit the $275 level a few times since the start of the year, but hasn’t been able to break through. The
bottom chart shows the stock’s implied volatility, which has dipped a bit from its spike in early February. Chart
source: thinkorswim® by
TD Ameritrade. Data source: Standard & Poor’s. Not a recommendation. For illustrative purposes only.
Past performance does not guarantee future results.
Around the upcoming earnings release, options traders have priced in about a 3 percent stock move in either direction, according
to data from the thinkorswim® platform. As of this morning, implied volatility was at the 58th percentile.
In short-term trading at the Apr. 20 expiration, calls have been active at the 260 and 265 strike prices, with higher activity
at the 270 strike, although that’s a little further out of the money. On the put side, the 250 and 255 strikes have been more
active.
Looking at the May 18 expiration, there has been a smattering of activity spread out across strikes. Open interest for both
calls and puts was highest at the 255 strike, with 11,305 contracts open on the call side and 10,710 on the put side as of this
morning.
Morgan Stanley Earnings and Options Activity
MS is expected to report adjusted EPS of $1.28, up from $0.94 in the prior-year quarter, on revenue of $10.4 billion, according
to third-party consensus estimates. Both the revenue and earnings estimates are a jump from when the company last reported. In Q4
2017, analysts were expecting $0.77 on revenue of $9.1 billion; MS reported adjusted EPS of $0.84 on revenue of $9.5 billion that
quarter.
MS SINCE START OF 2018. Shares of MS are up 3.18 percent on the year as of 4/12/18, beating the S&P 500 (SPX)
by a couple of points. Over the past several weeks, the stock has seen some support at the $52 level. The bottom chart shows the
stock’s implied volatility, which remains close to where it was at during the selloff in early February. Chart
source: thinkorswim® by
TD Ameritrade. Data source: Standard & Poor’s. Not a recommendation. For illustrative purposes only.
Past performance does not guarantee future results.
Around the upcoming earnings release, options traders have priced in about a 2.7 percent stock move in either direction,
according to options data from the thinkorswim® platform. As of this morning, implied volatility was at the 78th
percentile, on the higher end.
At the Apr. 20 monthly expiration, there’s been smattering of activity across calls, with trading more active on the put side.
On the put side, trading has been heavier at the 52.5 and 54 strikes. Open interest for both calls and puts was highest at the 55
strike price, with 12,135 contracts open at the 55-strike call and 10,937 contracts open at the 55-strike put as of this
morning.
At the May 18 monthly expiration, most of the activity has been concentrated at the 55 strike. During yesterday’s session,
volume was 3,515 contracts for the 55-strike call and 2,510 contracts for the 55-strike put.
What’s Coming Up
Earnings season continues to pick up next week. On top of the major banks, these are some of the other larger companies
scheduled to report:
-
Netflix Inc (NASDAQ: NFLX) reports
after the close on Monday, Apr. 16
-
Johnson & Johnson (NYSE: JNJ) reports
before the open on Tuesday, Apr. 17
-
IBM (NYSE: IBM) reports after the close on
Tuesday, Apr. 17
-
General Electric Company (NYSE: GE) and
Procter & Gamble Co (NYSE: PG) both report
before the open on Friday, Apr. 20
The week after that brings a tech-heavy stretch of results. Alphabet Inc. (NASDAQ: GOOG) (NASDAQ: GOOGL), Amazon.com, Inc. (NASDAQ: AMZN), Microsoft Corporation (NASDAQ: MSFT), Intel Corporation (NASDAQ: INTC), Facebook Inc (NASDAQ: FB) and Twitter Inc. (NYSE: TWTR) are just some of the many names on the docket the week of Apr. 23-27. If you
have time, make sure to check out today’s
market update for a look at what else is going on across markets.
Information from TDA is not intended to be investment advice or construed as a recommendation or endorsement of any
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