Chart of the day: US30 (12.01.2024; US banks' Q4 results)

Of all the major indexes on Wall Street, the Dow Jones and Russell 2000 are likely to see the most volatility in reaction to banks' quarterly results, which will kick off the Q4 2023 earnings season today. This is because the banking sector in these two indices has a much higher weighting than in the S&P 500 or Nasdaq. 

The banking sector's share of Wall Street's major indices

• Dow Jones (US30): 16.5%
• Russell 2000 (US2000): 16.0%
• S&P 500 (US500): 13.1%
• Nasdaq: 3.59%
• Nasdaq-100 (US100): 0.0%

Historically, the Russell 2000 has typically been more responsive to the quarterly results of local and smaller banks. The Dow Jones, due to the characteristics of the institutions that will report results today (large banks), may lead the way when it comes to the dynamics of volatility on Wall Street. Moreover, the US30 may additionally react to the release of data from UnitedHealth Group (UNH.US), which accounts for the largest share (by weight) in the Dow Jones index (more than 9.4%).

Source: S&P Global

What is worth paying attention to?

The financial sector is expected to post the fourth highest decline in EPS (year-on-year) of all 11 sectors at -3.1%. Key factors to watch when analyzing the quarterly results are (a) the impact of the sharp decline in profitability during the quarter; (2) the magnitude of the deterioration in credit quality; and (3) updates to forecasts for 2024 in light of softer interest rate and GDP expectations. Analysts expect more cost control measures, both in the form of formal programs and layoffs, subdued momentum in the mortgage market, and weak performance from investment banking. Income from wealth management divisions will benefit from the impact of year-end AUM growth in equities as well as fixed income instruments. Management's possible comments on the outlook for the M&A industry may be of particular interest, given the intersecting phenomena of cheaper financing but higher valuations and the market's stronger belief in a soft landing scenario.

Source: FactSet

Source: XTB Research

Today's session for the US30 could be crucial as the benchmark has been trading in a relatively narrow consolidation range since the first half of December. Worse-than-expected corporate results could encourage the buyers' side to book profits after recent strong gains, and thus bring the US30 to support near the gap triggered by the December 13 contract roll-up. Otherwise, better-than-expected results could lift the index toward recent local highs.

Source: xStation