With U.S. markets taking a holiday on Martin Luther King Jr. day, today will mark the first reaction to Friday’s downgrade. After market close on Friday, Standard and Poor’s downgraded the debts of nine European countries, including the AAA-rated France and Austria. Friday’s market were already down on the news that France took a hit, but the remaining eight downgrades were not announced until trading had ceased. That makes today a key moment for markets as many investors may potentially be selling out due to the bad news. On top of all of this, Tuesday will mark a major day in earnings season, as two big banks are set to release their most recent quarter’s figures [see also Iran Tensions And Crude Oil: What It Means For Your Portfolio].
First up is Citigroup who is predicted to rake in an EPS of $0.49 with revenues topping $18.5 billion. Though Citigroup has surpassed its last three analyst estimates, beating the street may not be enough for the day. Current analyst estimates for the final quarter of 2011 put revenue for the year down 8% from 2010, meaning that a positive report could still turn sour for this bellwether firm. With a market cap of nearly $90 billion and an ADV topping 56 million, the majority of investors will be anxiously waiting to see how Citi has endured the euro crisis and how the final figures of 2011 will shape up [see also ETFs To Play AAA Europe].
As if the aforementioned report wasn’t enough, Wells Fargo is also slated to release their earnings statement. The company is predicted to show EPS of $0.72 with revenues just over the $20 billion mark. Even if Wells Fargo hits its revenue estimates, it will still be down 6.6% from the previous quarter, leading to a 5.4% drop on the year overall. The firm came just short of their last earnings announcement, putting even more pressure on today’s report. For many financial institutions, the key component of their earnings statement will come from the ability to overcome turmoil overseas and remain relatively profitable, so look for this to be a major factor in how the day plays out [see also Financials Free ETFdb Portfolio Now Available].
With these two major earnings announcements on tap, today’s ETF to watch will be the young KBW Bank Portfolio (KBWB). This fund, which has amassed $83 million in assets despite being barely over two months old, holds both of the previously mentioned companies in high regard. Citigroup accounts for nearly 8% of the ETF as the top holding, while Wells Fargo comes in fourth place with about 7.5% of total assets. Not many analysts are optimistic about this quarter’s results from financial institutions, so it would not be a shock to see this ETF take a hit on the day, but also note that if these companies surprise, KBWB could be in for a big session [see also ETFs: The $10 Billion Club].
Disclosure: No positions at time of writing.