Earnings Recession May Have Some Bright Spots for Payments

The circus that is earnings season gets underway in earnest, starting … now.

Expectations are low, and results may not clear even that low hurdle, depending on where you look. Taken as a measure of the broader market, earnings for the S&P 500, on the whole, will see a profit slide for the third straight quarter. As Bloomberg noted on Thursday, that stands to be regarded as an earnings recession, even if the broader economy is doing relatively well, and employment has been gathering steam.

So why the disconnect? With profits tied to the index slated to slip as much as 7 percent, and revenues projected to decline 3 percent in tandem for the last quarter of the year, some deeper digging implies that there are longer term factors afoot that may make these earnings season a fond memory … but there may be a few bright spots.

Energy prices have played a part in the decline, as the oil and gas sectors are represented in the index. But beyond that lies the continued strength of the dollar, which has hampered results for export-focused companies.

For the purposes of the payments and financial sectors, a few stats stick out. Bloomberg noted that information tech companies will see earnings dip by 4.8 percent from a year ago, while 4.8 percent declines are expected for the financial companies overall.

This latter estimate must give investors pause – have estimates come down enough? Bloomberg stated that the Street has been a bit slow to take down projections for financials, citing “minimal revisions,” even though market swings may do much to take a bite out of trading activity, and capital markets have been on the wane.

The macro concerns that have been denting bank results are likely to continue, at least for the near term. The dollar may continue to be strong in the face of currency flight elsewhere. Energy prices are likely to remain at roughly these levels, barring some real, widespread unrest in the Middle East. Many large lenders have been on the hook with debt issued to energy firms that suddenly have been struggling to make their nut. And as capital slows amid concern for what might be coming down the pike internationally (read: will global and established companies look for financing to expand or will they stay dry powdered?), the payments industry may find a bit of a respite, due to the necessity of the technology.

Granted, the most recent big bank earnings, coming this morning from JPMorgan, topped expectations, and JPMorgan itself said it has set aside enough money to cover losses that may be incurred through loans issued to energy firms. But results beat estimates largely on the heels of cost cutting. Firms can only cut operating expenses by so much before they wind up being too lean.

As of this writing, the fact that JPMorgan bested expected results has given the markets a jolt, but this time it’s been an upward jolt. For payments firms, JPMorgan’s cost-cutting efforts may indeed lead to continued alliances with payments and FinTech firms, as it is always cheaper to join ‘em rather than try to beat ‘em.