After JP Morgan (JPM) Earnings Miss, Big Week Ahead for Financials

JP Morgan Chase (NYSE: JPM) opened earnings season for the big banks with a thud today. The bank’s fourth-quarter earnings declined 23% from the same quarter a year ago, which sent the stock tumbling more than 4% in early Friday trading.

What will JP Morgan’s earnings miss mean for other big U.S. banks? We’ll know soon. Citigroup (NYSE: C) will hold its earnings announcement next Tuesday. Wells Fargo (NYSE: WFC) and Goldman Sachs (NYSE: GS) will follow on Wednesday. Bank of America (NYSE: BAC) and Morgan Stanley (NYSE: MS) will report their earnings on Thursday.

Of course, in true stock market form, those companies are already feeling the effects of JP Morgan’s earnings decline even before they report their own earnings. Bank of America’s stock was down 4.3% as of 10:55 this morning. Morgan Stanley is down 3.5%, Goldman Sachs is down 3.4%, Citigroup 2.9%, and Wells Fargo has fallen 1.1%.

But the fate of those stocks won’t truly be decided until next week. While JP Morgan’s earnings miss was a temporary blow both to its stock and financials as a whole, better year-to-year growth from its peers will make JP Morgan’s rough quarter little more than a footnote. How the big banks performed collectively in the fourth quarter will say a lot about which direction the economy – and the markets – are headed.

JP Morgan’s fourth quarter wasn’t a complete disaster. Despite the steep year-over-year decline, the bank still reported a sizeable profit of $3.73 billion, or 90 cents a share, on $22.2 billion in revenue. It still turned a profit of $19 billion in 2011, a 9% improvement from the $17.4 billion JP Morgan earned in 2010.

A slowdown in JP Morgan’s investment banking unit was partly responsible for the bank’s fourth-quarter earnings decline. Its investment banking unit’s profits sank 52% from the previous year – a bad sign for investment banks Goldman Sachs and Morgan Stanley.

We’ll know just how bad a sign it was by the middle of next week.  

Published by Wyatt Investment Research at