(Bloomberg) -- The biggest US bank stocks have been trouncing the broader market this year, but their rally got a brake-check once again from earnings results that underwhelmed investors.
Wells Fargo & Co. sank 6% for its worst earnings-day drop in more than three years after a net interest income miss. Citigroup Inc. slumped 1.8% as expenses were in focus, even though its markets revenue beat expectations. And JPMorgan Chase & Co. fell 1.2% after its results and steady guidance failed to impress. All three were among the 20 biggest decliners in the S&P 500 Index Friday, a session in which more than 400 of the index’s stocks rose, with Wells Fargo coming in as the day’s biggest loser.
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 were particularly stark given the broader market was rising on Friday, with about 400 S&P stocks in the green.
“All three of the reporters today had been up significantly on a year-to-date basis,” said Art Hogan, chief market strategist at B. Riley Wealth. Being up so much “certainly puts you in a place where you’re priced-to-perfection.”
Wells, Citi and JPMorgan also finished lower three months ago after their first-quarter results, showing how earnings are increasingly a tripping hazard for the sector as valuations climb. This time around, Wells Fargo appeared to have the most severe issues after warning 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.
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 post results.
--With assistance from Katrina Compoli.
(Updates shares throughout and in chart.)
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