First Up: JPM Earnings Opens Door To The Browbeaten Banking Sector

| About: JPMorgan Chase (JPM)

Summary

Banks have been battered by persistently low interest rates, a hard-hitting regulatory environment and the collapse in the energy markets.

Analysts have been pushing down earnings expectations the entire quarter, and at last glance they were sitting at a per-share profit of $1.26.

Short-term option traders have priced in a potential 2.3% share price move in either direction around the earnings release.

JPMorgan Chase (NYSE:JPM) is first up in a browbeaten line of banking-sector earnings results that Wall Street analysts say will be among the worst in nearly five years and the sorriest among the 10 S&P 500 (SPX) sectors. Will what happens at JPM stay at JPM?

Probably not, considering the tenor on the Street and in the markets, many analysts say. JPM, the largest (by assets) among the nation's big banks, will paint the first brush of the sector's earnings picture when it reports ahead of the bell Wednesday. Banks have been battered by persistently low interest rates, a hard-hitting regulatory environment and the collapse in the energy markets. The sector has been the worst-performing on the SPX, down 8% while the index is clawing to stay in positive territory. Earnings, overall, are forecast to tumble 9.2% while sales are expected to barely inch up by 0.02%, according to analysts reporting to Thomson Reuters.

And What About Interest Rates?

What could be more interesting than the results are the forward-looking statements analysts say they will be listening for on the JPM conference call. Will Chief Executive Jamie Dimon have an upbeat forecast for Q2 and the rest of the year? What does he and his JPM cohorts, with their fingers on the pulse of business and interest rates every day, think about the future of the Federal funds rate?

Analysts have been pushing down earnings expectations the entire quarter, and at last glance they were sitting at a per-share profit of $1.26, a deeper-than 13% drop from the year-ago period. On the sales front, the top line is projected to retreat about 1.6% to $24.8 billion.

Short-term option traders have priced in a potential 2.3% share price move in either direction around the earnings release, according to the Market Maker Move indicator on the thinkorswim platform from TD Ameritrade.

Going into earnings, the 60-strike calls were busy as were the 57½-strike puts, with activity stepping up by two times the normal amount of total calls and puts overall on Monday. Implied volatility is sitting very low at the 29 th percentile. (Please remember past performance is no guarantee of future results.)

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price and 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.

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Figure 1: Can Earnings Help JPM Shares? Since bottoming in February, JPM shares have regained nearly 10%. 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.

TD Ameritrade commentary for educational purposes only. Member SIPC. Options involve risks and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.