Citigroup (C) - Get Citigroup Inc. Report will post fourth quarter profit figures Monday, kicking off the start of a fourth quarter earnings season during which investors are far more likely to focus on 2019 forecasts than bottom line details for the final three months of last year.
Apple Inc.'s (AAPL) - Get Apple Inc. Report shock revenue warning earlier this month, which it pinned on slowing China growth, has put investors on edge heading into the fourth quarter reporting season, although expectations for profit growth have been falling since U.S. stocks started to turn south in early October. S&P 500 earnings are expected to grow by around 14.5%, according to I/B/E/S data from Refinitiv, down from an original estimate of 20.1% just three months ago, with around 35 companies, including many of the markets' top-tier banks, releasing numbers this week.
"Analysts have been backpedaling earnings expectations faster than usual in the run-up to the Q4 releases," said analysts at London Capital Group. "Apple's high-profile warning may have unduly lowered the bar for other firms (but) given the concerns over the US and global economic outlook, investors will be watching company growth expectations to provide clues as to where next for the markets."
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Recent data from China, the world's second largest economy and the globe's biggest exporter, has pointed to a sharp turn in growth over the final months of last year, triggering promises of billions in fresh stimulus from Beijing and renewed trade talks with officials in Washington.
However, with China's 2019 GDP forecast to expand at the slowest pace in a decade, pulling global growth lower at the same time, U.S. investors will need to focus sharply on full-year earnings estimates and macro-economic projections from company CEOs this season, given that nearly 43% of S&P 500 undefined company revenues come from markets outside of the United States.
Bank earnings will provide a key signal for that forward outlook this week, with Goldman Sachs (GS) - Get Goldman Sachs Group, Inc. Report , JPMorgan Chase (JPM) - Get JPMorgan Chase & Co. Report , Wells Fargo (WFC) - Get Wells Fargo & Company Report , Bank of America (BAC) - Get Bank of America Corp Report and Morgan Stanley (MS) - Get Morgan Stanley Report all set to provide both fourth quarter updates and fresh 2019 guidance.
Analysts at Credit Suisse expect big-cap U.S. bank earnings to rise by around 22% over the three months ending in December, compared to the same period last year, but see a quarter-on-quarter decline of around 3%.
Citigroup is expected to post top line earnings of $1.55 per share, according to the consensus forecast, up from $1.06 for the same period last year. Group revenues are expected to slip 1% to around $17.55 billion.
Citigroup shares were marked 0.37% higher in pre-market trading Monday, indicating an openibn bell price of $56.90 each, a move that would trim the stock's three-month decline to around 18.5%.
Banks will likely have struggled to maintain profit margins over the final quarter of last year, however, given the compression of the yield curve -- the gap between short and longer-term interest rates -- and the slowdown in the housing market, which capped gains for mortgage lending.
However, a significant increase in share buybacks -- the "silver lining to lower share prices", according to Credit Suisse -- providing fourth quarter earnings support.
The full year outlook, however, is likely to be dominated by each of the banks' outlook for economic growth, according to Credit Suisse analysts, and the corresponding spillover into the kind of lending activity that ultimately boosts profits.
"Simply put, greater confidence in the health and stability of the macro backdrop," is what is likely to move bank stocks higher over the report period, Credit Sussie said. "Expectations for earnings growth into 2019/2020 remain reasonable, assuming sustained positive GDP growth."