S&P 500 Financials Sector Earnings Preview: Q3 2024

The Financials sector will be a focus for the market during the next two weeks, as nearly 50% of the S&P 500 companies that are scheduled to report earnings for the third quarter over this period are part of this sector. Companies in this sector that are expected to report earnings during these two weeks include Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo. The Financials sector is predicted to report a year-over-year earnings decline of -0.4% for the third quarter.

At the industry level, the Banks industry is the only industry in the sector that is expected to report a year-over-year decline in earnings at -12%. This industry is also expected to be the largest contributor to the year-over-year earnings decline for the sector. If the Banks industry were excluded, the estimated earnings growth rate for the Financials sector would improve to 6.9% from -0.4%. Within the Banks industry, the Regional Banks sub-industry is projected to report year-over-year earnings growth of less than 1%, while the Diversified Banks industry is projected to report a year-over-year earnings decline of -13%.

Sean Ryan, VP/Associate Director for the banking and specialty finance sector at FactSet, highlighted a number of key themes and metrics to watch for banks in the S&P 500 during this earnings season:

Bank earnings season begins on Friday, October 11, and while many trends are likely to simply continue those of recent quarters, the start of the easing cycle (and its predictable sequelae) holds out a mitigation, and in some cases reversal, of some of these negative trends. 

The interest rate environment was a positive in the second quarter, with one significant caveat; the 10 year Treasury yield declined 58bps to 3.79%, which should reduce OCI losses (thus boosting book values), and the 2-10 spread steepened by 49bps, finally ending an extended period of inversion and ending the quarter in positive territory, if only just (14bps). At the short end of the curve, the long-awaited easing cycle finally began with September’s Fed Funds cut, and a heavily front-loaded easing pattern reflected in the forward curve. The caveat is that the Fed’s easing, while not a large factor in 3Q results, is apt to weigh on short term NIM expectations, as the immediate impact on asset sensitive balance sheets outweighs the longer term benefits. This is just one of several near term headwinds that markets may look past, while focusing on potential benefits to 2025 results.

Net interest income will likely again be restrained by sluggish loan growth. On top of this, the NIM bottoming process that had been underway, as noted above, is likely to take a (probably brief) pause,

Noninterest revenues should be mixed. Investment banking revenues will again be restrained by weakness in M&A as the market continues to await a resurgence in sponsor-led activity, although there are signs of a pickup in sponsor monetizations which may accelerate a virtuous cycle. Mortgage banking revenues will likely remain sluggish despite the decline in interest rates. Wealth and asset management results should again enjoy a tailwind from the 5.5% gain posted by the S&P 500 during the quarter (a slight improvement over last quarter’s 3.9% gain).

Credit should remain a headwind, though here again, markets may find good cause to look ahead to potentially better news in 2025. CRE and credit cards (particularly in the less affluent segments) are yet again the key drivers of provisioning, but the onset of the easing cycle offers hope that pressure on CRE (and some C&I) refinancings will ease.

All told, third quarter bank results look to be a mixed bag, but seeded with multiple reasons for the market to look through near term negatives, and ahead to potentially more positive conditions (and results) in 2025.

For more commentary and analysis on the banking industry, please see Sean’s articles on the FactSet Insight blog.

On the other hand, the other four industries in the sector are expected to report year-over-year growth in earnings: Capital Markets, Insurance, Financial Services, and Consumer Services.

The Capital Markets industry is expected to report the highest earnings growth of the five industries in the sector at 11%. Within the Capital Markets industry, all three sub-industries are projected to report year-over-year earnings growth: Investment Banking & Brokerage (15%), Financial Exchanges & Data (9%), and Asset Management & Custody Banks (8%).

The Insurance industry is expected to report the second-highest earnings growth of the five industries in the sector at 9%. Within the Insurance industry, two sub-industries are projected to report year-over-year earnings growth: Property & Casualty Insurance (25%) and Insurance Brokers (12%). On the other hand, three sub-industries are projected to report a year-over-year earnings decline: Multi-line Insurance (-32%), Reinsurance (-23%), and Life & Health Insurance (less than -1%).

The Financial Services industry is expected to report the third-highest earnings growth of the five industries in the sector at 4%. Within this industry, the Transaction & Payment Processing Services sub-industry is projected to report year-over-year earnings growth of 7%, while the Multi-Sector Holdings sub-industry is projected to report a year-over-year decline in earnings of -3%.

The Consumer Finance industry is expected to report the fourth-highest earnings growth of the five industries in the sector at less than 1%.

Looking ahead, analysts are predicting earnings growth rates for the Financials sector of 39.8%, 6.0%, and 1.4% for Q4 2024, Q1 2025, and Q2 2025, respectively. Analysts expect a significant rebound in year-over-year earnings for the Banks industry in Q4 2024, mainly due to an easy comparison to weaker earnings for the industry in Q4 2023. As a result, the Banks industry is driving the overall earnings growth rate for the Financials sector to nearly 40% for Q4 2024.

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