Big Bank Stocks Dip Following Lower Than Expected Earnings

The largest US bank stocks have been crushing the overall market, but investor disappointment with the results put a stop to the rally.

Following its net interest income miss, Wells Fargo is expected to see its largest earnings-day decline in over three years. Even though Citigroup’s market revenue exceeded forecasts, the company fell as focus shifted to spending.

Meanwhile, JPMorgan Chase & Co., which sank the most in a month after its results and steady guidance failed to impress, is reclaiming part of that early decline.

In short, the results were not enough to keep the momentum going after rallies had sent all the stocks up by more than 20% this year through Thursday’s close, compared with the S&P 500 Index’s 17% gain. The moves are particularly stark given the broader market is rising on Friday, with roughly 425 S&P stocks in the green territory.

All three banks today had been up significantly on a year-to-date basis. Being up so much certainly puts you in a place where you’re priced-to-perfection.

All three stocks had finished lower after their first-quarter results, showing how earnings are increasingly a tripping hazard for the sector as valuations have risen.

Wells Fargo is the worst-performing stock in the S&P 500 for the session, with shares dropping as much as 7.6%, their biggest intraday decline since March 2023. The lending giant warned in its earnings report that it won’t be able to cut costs this year as fast as it had projected after posting higher-than-expected expenses in the second quarter. Citigroup is among the 10 worst performers in the S&P, sinking as much as 3.6%.

The largest US banks have been soaring in 2024 amid optimism around the Federal Reserve cutting rates and the economy holding strong, as well as the potential for an ease in restrictive regulatory proposals. While they remain up sharply despite this session’s declines, the second-quarter results show the potential risks for the group now that expectations are heightened.

Bank of America Corp., Goldman Sachs Group Inc. and Morgan Stanley will be in focus early next week as they’re set to publish their results.