Earnings were good, so here's why bank stocks are down

Earnings were good, so here's why bank stocks are down

Banks are beginning to report earnings. All four banks reporting (JP Morgan, Citigroup, Wells Fargo, and PNC) beat earnings expectations and all but Wells Fargo beat on the topline.

So why are they all trading down Friday?

There's two issues: fundamental and seasonal.

First, the soft economic data we saw Friday — retail sales, but particularly the Consumer Price Index — clearly lowered the chances for a Fed rate hike later in the year.

That brought down Treasury yields, which is lowering the chances for increased profits from one of the primary profit centers for banks — interest income.

Less well-known is a seasonal phenomenon: Banks tend to trade up in the month before JPMorgan's earnings report, trade slightly down on the day of the report and are generally flat in the month after.

Here are the results for banks  since 2010 in the month before JPMorgan reports earnings, the day of, and a month after:

Banks and earnings
(KBE)

One month before JPM: up 1.0%
Day of: down 0.1%
One month after: down 0.3%
Source: Kensho

Note that even a month after JPMorgan reports, banks tend to be down slightly (down 0.3 percent), while the S&P 500 is typically up 0.5 percent.

Bottom line: Expect some downward earnings revisions on second half bank earnings around lower interest income, but factor in the seasonal weakness as well.

Disclosure: NBCUniversal, parent of CNBC, is a minority investor in Kensho.

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