Earnings season will begin with a bang. A slew of financial services companies are set to report results for July through September on Tuesday. The results will tell us a lot about both the impact of lower interest rates and the health of the global economy.
The big question is the extent to which US banks have been hit by lower interest rates, which eat into lending profits. The Federal Reserve cut short-term rates twice this quarter, while fears about global economic growth weighed on long-term rates.
The sector’s stocks have clearly been sensitive to these trends — though they’ve also benefited from a broader rotation out of so-called “momentum” stocks, which recently outperformed the market, and into “value” stocks, which are thought to be trading below their true worth, per Keefe, Bruyette & Woods bank analyst Brian Kleinhanzl.
Investment banking could also show signs of strain this quarter after major deals, such as the WeWork IPO, were postponed, Stephen Biggar, director of financial institutions research at Argus Research, told me. (However, debt underwriting probably made up for some of that weakness as companies took advantage of low rates and refinanced.)
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