Trading Ideas as Big Banks Kick-Off Earnings Season

Justin Freeman

Earnings season trading ideas

There is consensus in the trading community that the arrival of US earnings season is about to fire up price volatility; there is also agreement developing on how to trade it. The big banks typically dominate the first week of earnings season. That means many investors are heading to the finance sector to trade the news. This report of Monday outlined how the corporate earnings will be served on a foundation of other central bank announcements due this week – a lot is going on.

Citigroup – Buy or Sell?

The pick of the earnings announcements looks to be Citigroup which reports on Wednesday. Citi has lagged the rest of the sector and, as an outlying laggard, would be the first to flag up trouble ahead. Equally, if Citi’s report beats expectations, it would provide a boost for all the firms.

Citigroup Fundamentals – 2020 – 2021

Citigroup fundamentals 2020-2021

Source: eToro

Trading Citigroup is possible on most of the reputable online trading platforms. The firm has a market capitalisation of $143bn, so it too big for them to ignore, and the Citigroup share price recently pulled back more than 10% from its June highs. Those looking to buy the dip will have to decide whether they do so before or after the earnings are announced, but if a high degree of concentrated single stock risk is too much to take on, there are alternatives.

Citigroup Share Price Chart – 2020 – 2021

Citigroup Share Price Chart 2020 - 2021

Source: eToro

Is Now the Time to Buy Banking ETFs?

Buying into a fund style product diversifies some of the risk. With so many banks reporting this week, casting a wide net could take some of the noise out of P&L performance. From a fundamental perspective, the possibility of higher interest rates would be good for all banks. Their profit margins improve the more that base rates move away from zero. There is also the fact that the regulatory conditions applied on banks during the Covid pandemic are being relaxed.

IG has marked down a long position in the Financial Select Sector Fund (XLF) ETF as their trade of the week. The fund focuses on North American banks – which fits in with the US earnings season being upon us and seeks to track the S&P Financial Select Sector Index. The fund is an open-end investment entity which means trading in and out of it is super-easy. In addition, the fact that the ETF is managed by State Street Global Advisors and is listed on the New York Stock Exchange Arca offers an additional degree of security.

XLF ETF Price Chart

XLF ETF Price Chart

Source: IG

Goldman Sachs and JPMorgan Chase will offer some colour on Tuesday when they report their figures, and Wells Fargo and Bank of America join Citigroup in announcing earnings news on Wednesday. The last big bank to announce is Morgan Stanley on Thursday. With technical and fundamental factors aligning, there is some justification for the excitement around the sector. In addition, the news event catalysts lining up to come into play should result in increased volatility and potential trade entry points.

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Justin Freeman
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