Equities weekly forecast: JP Morgan, Wells Fargo & PepsiCo

U.S. banks will kick off Q4 earnings season next week. With earning reports from JP Morgan and Wells Fargo on October 11th, this will be followed by Citigroup, Goldman Sachs, Bank of America, and Morgan Stanley next week.

What could lower interest rates mean for bank earnings?

The Q3 earnings come as the market weighs lower interest rates. The Fed cut rates by a bumper 50 basis points in the September meeting, with more rate cuts to follow. Investors will look for clues about how the lower interest rate environment could impact banks' bottom lines.

Lower interest rates may not provide as much of a boost to the bigger banks than regional banks, as a smaller portion of their revenue comes from loans. However, if the Fed’s rate cuts spark an increase in economic activity, this will benefit the bigger banks owing to their more diversified revenue streams. A rise in economic activity could be significant for deal-making, investing, credit card spending, and financial transactions across the board. The big question is whether the banks will be lifted based on future profit expectations.

Investment banking and equities trading revenue significantly jumped in the previous quarter; investors will be looking to see if the trend continues, especially with US equity markets reaching multiple record highs in the quarter.

Bad loan provisions could also be a central focus. In the previous quarters, there was a higher-than-expected increase in last provisions at the major banks, meaning that they are building up the largest safety Nets amid concerns that there could be more loan defaults ahead. Should we see another round of higher-than-expected bad loan provisions, this could be a worrying sign for banks and the broader economy.

JP Morgan Q3 earnings preview

The largest bank by asset will report earnings on Friday, October 11, before the market opens. Wall Street expects EPS of $4 and revenue of $41.49 billion, compared to $.33 and revenue of $39.87 billion in the same period a year earlier.

Q2 results were mixed, resulting in the share price falling 1.2% on the day of the release. A higher-than-expected rise in bad loan provisions offset a 52% jump in investment banking fees and a strong rise in equities trading revenue. The market will be watching to see if this trend continues.

How to trade JPM Q3 earnings?

The results come as the share price has traded up 20% this year, in line with the broader market. However, the share price has fallen away from the record high, creating a lower high and a sign that the uptrend has run out of steam.

The price ran into support at the 202 -200 zone and rebounded higher, testing the 50 SMA at 209. Buyers will look to extend gains further towards 224, which is the record high.

On the downside, a break below 202-200 exposes the 200 SMA at 192.00.

Wells Fargo Q3 earnings preview

The bank will release earnings on Friday, October 11, before the market opens. Wall Street expects Q3 EPS of $1.28 on revenue of $20.39 billion compared to EPS of $1.48 on revenue of $20.86 billion a year earlier.

The earnings come as the bank has been making progress towards liting the $1.95 trillion asset cap imposed on the bank in 2017. This was imposed after a string of infractions.

How to trade WFC Q3 earnings?

Wells Fargo has been falling from its all-time high of 62, creating a series of lower lows. More recently, the price has recovered from a low of 50, rising above its 200 SMA, and ran into resistance at 57.00. A rise above her brings 58.65 into focus, the falling trendline resistance. Above here, buyers will look towards 60.00.

Failure to retake the 57 resistance could see the price retest the 200 SMA at 55.00.  break below here opens the door to 50.00.

PepsiCo Q3 earnings preview

PepsiCo will report earnings before the bell on Tuesday and is expected to post modest growth in revenue and profits after the company warned consumers had become more value-conscious. Wall Street expects PepsiCo to post Q3 revenue of $23.83 billion, up from $23.45 billion in the same quarter a year ago. EPS is expected to be $2.28, up from $2.24 in the same quarter in 2023.

Last quarter, PepsiCo reduced its organic revenue growth projection to 4% for the fiscal year 2024 amid changes in consumer habits and signs of subdued spending among consumers as households took more care over how they spent their budgets.

Looking ahead, with inflation cooling, PepsiCo product price hikes should slow, which could revive demand for Pepsi’s products and lift sale volumes.

How to trade PepsiCo earnings?

On the weekly chart, PepsiCo trades above its 200 SMA, indicating a long-term uptrend. The price recently ran into resistance at 179.00 and has rebounded lower, testing the 50 SMA at 167.00. A break below here exposes the 200 SMA at 158, and a break below 156, the 2024 low, creates a lower low.

Should the 50 SMA support hold, buyers will look to rise to test the falling trend line resistance at 179. A rise above here creates a higher high..