Q4 earnings kicked off with five of the biggest companies within the financial sector. JP Morgan (NYSE:JPM), Wells Fargo (NYSE:WFC), Goldman Sachs (NYSE:GS), Blackrock (NYSE:BLK), and Citigroup (NYSE:C) all reported results this morning. All five beat earnings estimates, with Goldman and JPM providing the biggest upside surprise.
Three of five beat on sales estimates, while WFC missed and C came in just as expected.
Looking ahead, the above chart shows each of the fives forward estimates for 2025 in comparison to the market average. For the most part, financials fall into the value category. With growth rates below the market average, but valuations that are much cheaper and with higher dividends.
The PEG ratio (or price-to-earnings growth) compares current valuations to a company's expected growth rate. The higher the PEG ratio, the more expensive it is. Based on PEG, two companies (GS and C) are actually showing better results compared to the market average.
The clear standout here is Citigroup. With an above-average EPS growth rate (although sales are soft), and below-average valuations. There is no surprise to me that its the only stock out of the five that is currently trading at a 52-week high.
When you buy shares of a company’s stock, you are buying a portion of that company’s future earnings. So when it comes to price movements in a stock, it usually depends on how earnings results come in compared to what the street is expecting.
On this front, there is some positive developments with the rise of interest rates. The yield curve (or difference between short-term and long-term bond rates) continues to become “more positive”, meaning long-term bonds are offering higher yields than short-term bonds.
With financials, part of their business model is obviously to lend long-term, and pay depositors at short-term rates. If the spread (or net interest income) continues to rise, it raises the chance that results can come in better than current estimates. Although each company is affected differently, based on their business model.
The financial sector ETF (XLF) broke above the prior swing high but came into potential resistance around the $49.45 level this morning. If we can hold the 50 day moving average, then we could get continued follow through higher.