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Market Update

Mixed Earnings, Sub-Par Retail Bounce Fail to Meet Street’s Tough Standards

April 14, 2015

After a day of drift on Monday, this morning brings some of the highly anticipated earnings that much of Wall Street has been waiting for. That included some big banks whose mixed bag of earnings left early stock indicators tinted red. Action could turn choppy again as investors digest a rebound in a retail sales reading that wasn’t quite the bounce the Street expected. And then there are more earnings. In fact, 36 companies of the S&P 500 (SPX) are due to report this week as earnings season heats up.

The broader market is facing those earnings with some undertow after the SPX failed to hold the pivotal 2100 line to start the week (figure 1). Keep an eye on that level and any positioning in the CBOE Volatility Index (VIX), which could draw late-day interest ahead of a pre-market speech on Wednesday from St. Louis Federal Reserve chief James Bullard. Bullard does not hold a policy vote this year but does take part in deliberations. In recent weeks, he’s called for some “normalization” in interest rates, although to a degree that would still leave monetary policy exceptionally accommodative. Bullard has also warned, fairly gently, about the risk of asset-price bubbles which could make any stock-focused speech he gives of particular interest to the Street.

FIGURE 1: HEAD ROOM? The S&P 500 (SPX) chopped in a mixed session Monday and failed to clear the closely watched 2100 line by the final bell. Data source: Standard & Poor’s. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Mixed Earnings for Banks, Consumer Giant. JP Morgan Chase (JPM) topped Wall Street expectations with Q1 profit and revenue. The bank said earnings per share were $1.45, up from $1.28 in the same period a year earlier. The largest U.S. bank by assets also said revenue rose to $24.82 billion, which beat the Street consensus crunched by Thomson Reuters for $24.49 billion. Now its rival Wells Fargo & Co. (WFC) said Q1 earnings fell 1.5%, the first profit drop in more than four years, which the fourth-largest bank by assets chalked up to lending margins. WFC earned $1.04 a share, down from $1.05 a share in the same period of 2014. But earnings were better than the 98 cents per share expected by analysts polled by Thomson Reuters. Revenue rose 3.2% to $21.28 billion. Analysts had expected $21.24 billion. From a different corner, health care and consumer goods stronghold Johnson & Johnson (JNJ) beat with its latest quarterly results but sent up a flare about currency drag. JNJ now expects full-year EPS of $6.04 to $6.19, compared with the current FactSet consensus of $6.19.

Retail Rebound. The consumer has had its spring awakening at last? Sales at U.S. retailers rose in March by the largest amount in a year, a reading that follows three straight monthly declines. Retail sales rose a seasonally adjusted 0.9% last month, or by 0.4% excluding the auto sector, in line to just below most industry economist expectations. Auto sales jumped 2.7% in March, also the highest in a year.

Just a Little Off the Top. The International Monetary Fund on Tuesday lowered its outlook for U.S. economic growth by a half percentage point this year, to 3.1%, and cut its 2016 estimate by two-tenths, also to 3.1%. The IMF downgrade still makes it more optimistic on growth than the Federal Reserve, which is forecasting 2.5% growth this year. But the IMF kept its global growth forecast for this year at 3.5% and nudged up its 2016 estimate by a tenth of a percentage point to 3.6%, as the IMF raised its 2015 growth estimate for the euro area, Japan, the United Kingdom and India.

Good trading,

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