Although equity markets experienced a rough session in Thursday trading, 2011 has seen a pretty solid start for most sectors of the American economy. Over the past few weeks, financials have been among the biggest gainers thanks to moderating fears over the European debt crisis as well as a solid outlook from a variety of important bellwethers in the industry, a trend that has helped to keep spirits high for many who have invested in the beaten down sector. While the news has been good as of late, all that could change later today when crucial banking giant J.P. Morgan (JPM) gives its quarterly earnings report.
The New York City-based financial behemoth is scheduled to post earnings of 99 cents per share before the bell today on revenues of $24.48 billion. However, there is a rather large range for analyst estimates ranging from a high of $1.09 a share to 85 cents a share suggests there is a significant difference in opinion among analysts tracking the firm. Either way, the earnings look likely to beat out the company’s profits for the year ago period in which JPM posted earnings of 74 cents a share [see Financial ETFs Soar On New Basel Rules].
It should also be noted that these figures represent tempered expectations and that JPM should have no problem meeting these levels considering that Q4 revenue outlooks were 8.8% lower than they were in the same period in 2009. As a result, investors will probably focus in on the company’s corporate finance revenues which are likely to be higher but could be offset by lower trading volumes and widening credit spreads at international counterparties, according to analysts at Keefe, Bruyette & Wooods.
Due to this crucial earnings report from one of the world’s most important financial companies, we look for the Merrill Lynch Regional Bank HOLDR (RKH) to remain in focus throughout today’s trading session. The fund allocates 21.7% to JPM while offering large allocations to Wells Fargo (20.3%) and U.S. Bancorp (17.9%) as well. In total, the fund offers exposure to 17 different securities with an extremely heavy focus on stocks in the large and giant cap market segments [read Five Facts About HOLDRs Every Investor Must Know].
As financials have rebounded in recent months, RKH has gained as well; the fund is up close to 15.7% over just the past quarter. This trend is further confirmed by its solid 2.3% gain so far in 2011 suggesting that this year could be another good one for financials. Should JPM post robust earnings and raise its guidance for the new year, look for RKH to continue its march higher. If, however, JPM warns investors by lowering its outlook or failing to meet the somewhat meager earnings estimates, it could put a dark cloud over the financial industry to start 2011 and temper expectations for the entire sector heading into the all-important winter earnings season [read Three Sector ETFs With Sky-High Betas].
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Disclosure: No positions at time of writing, photo is courtesy of Durin.