Why bank stocks fell after several strong earnings reports, according to Jim Cramer
Jim Cramer said investors focused on inflation, rates and market risks, even as several large banks posted solid third-quarter results.
By Theo Nakamura · Staff Writer
· 3 min read
Bank stocks fell after third-quarter results even when parts of several reports looked strong. Explaining why bank stocks fell after earnings, CNBC’s Jim Cramer said investors were weighing risks to the outlook, including persistent inflation, rising interest rates and unstable capital markets, more heavily than the quarter that had just ended.
CNBC reported that shares of all six major banks covered in its earnings roundup declined after their reports. The results were mixed rather than uniformly strong, but the negative market response extended to banks that beat expectations or reported sharp growth in some businesses.
For investors, the distinction is that a quarterly earnings release records past performance, while a share price also reflects what investors think a company can earn in the future. A company can beat a forecast and still fall if the market expected more, sees weaknesses elsewhere in the report, or becomes less confident that favorable conditions will continue. Revenue and earnings measure different parts of a company’s results, so a miss in either can also shape the reaction.
Why did bank stocks fall after earnings?
Cramer’s explanation was primarily about the broader outlook. He said inflation, higher rates and newly unsteady capital markets had investors concerned about what could come next. His view is market commentary, not a confirmed single cause of the sell-off.
Company-specific details also gave investors reasons to be selective. JPMorgan Chase missed revenue and earnings estimates, according to CNBC, as fixed-income trading and asset management were weak and expenses rose faster than revenue. Management nevertheless gave better-than-expected forecasts for net interest income, the difference between interest earned on loans and interest paid on deposits, for the fourth quarter and 2027.
Citigroup reported 8% year-over-year revenue growth and raised its full-year net interest income outlook, yet its shares fell 5.6% after the report. Cramer said he suspected the stock was being penalized after outperforming other large banks recently.
Goldman Sachs beat revenue and earnings expectations. Its investment-banking fees rose 21% and equities-trading revenue climbed 72%, CNBC reported. But the shares gave up an early gain and finished slightly lower. Cramer interpreted that reaction as skepticism about whether the favorable environment for those businesses can persist.
Bank of America’s decline came with more obvious report-specific pressures. The bank missed both revenue and earnings expectations; investment-banking fees fell 11% and fixed-income trading revenue dropped 17%. CNBC also reported it was dealing with a $1.2 billion regulatory penalty tied to alleged anti-money-laundering and sanctions-law violations.
Cramer’s counterpoint on Wells Fargo and Goldman Sachs
Cramer did not view every decline as a verdict on a bank’s longer-term prospects. His Charitable Trust raised its ratings on Wells Fargo and Goldman Sachs to buy-equivalent after their reports. Those are views from Cramer’s trust, not a neutral market consensus or a guarantee of future returns.
Wells Fargo beat earnings estimates but missed on revenue, while its net interest margin stabilized at 2.43%, slightly above expectations. Morgan Stanley also topped expectations, with institutional securities revenue up 18% and wealth-management revenue up 10%, but its stock still fell almost 3%, CNBC reported.
This story draws on original reporting from CNBC.
