The first-quarter earnings season for banks kicks off this week as four of the largest banks are scheduled to report this week. Bank earnings (XLF) are considered a proxy for the overall health of the economy. First-quarter earnings of these banks are expected to be dull, as their businesses have been hit by falling oil prices and global volatility.
Banks started the year with expectations of four rounds of rate hikes. Financial stocks gain from higher interest rates and a steepening yield curve. However, rates have remained unchanged so far this year, which has led to weak expectations for first-quarter earnings. Consensus estimates suggest that the financial sector is expected to drop by 7.9% year-over-year in 1Q16.
Here’s a rundown of the major earnings releases in store for investors this week:
Investors are looking forward to the earnings releases of US banks to determine the impact of the rate hike on their earnings. Weak oil prices and tension in China will hurt trading revenues. Overall, analysts expect earnings to be low due to high legal expenses, low interest rates, and capital market weakness. Tighter regulations continue to remain a challenge for US banks as they struggle to remain profitable despite the high legal expenses.