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Market Update

Tough Revenue Expectations Color Start of Earnings Season

April 15, 2015

Sometimes profit isn’t enough. Wall Street is proving to be a bit of a stickler when it comes to revenue generation reported in this earnings round. And maybe that’s a good thing. It’s a theme playing out in trading this week at least, as revenue shortfalls for some corporate giants, and continued worry about a strong-dollar drag, have trounced headlines showing improved bottom lines. That’s certainly the case for Bank of America (BAC) today (more on it, below). As for the broad market, the S&P 500 (SPX), home to BofA and other financials, is knocking up against closely watched 2100. That mark continues as a solid closing barrier over the last few choppy trading sessions (figure 1). An early challenge again looks likely. And at the final bell? Let’s see.

Now, there are a handful of earnings stories feeding the bulls. Intel (INTC) is trading up in early action after its results, so is Delta (DAL), and Angie’s List (ANGI), too. But there’s little doubt that at these broad stock market levels, investors are fussier. Caterpillar (CAT) is due up next week. It may be a big test for a market that’s already dollar-sensitive, but is primed to hear straight from the source about the negative impact of a brawny buck.

FIGURE 1: IMPOSING CEILING? The S&P 500 (SPX) chopped in a mixed session Monday and Tuesday yet 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.

Europe Sets the Tone? U.S. indexes could find some traction courtesy of the Continent. Europe's benchmark stock index was headed for its highest close ever on Wednesday. Investors there were cheered, or at least soothed, by rather upbeat commentary from European Central Bank President Mario Draghi. Speaking at a press conference after the central bank's monetary-policy meeting, the ECB head said the bank's aggressive easing program has been effective. “Looking ahead, we expect the economic recovery to broaden and strengthen gradually. Domestic demand should be further supported by ongoing improvements in financial conditions, as well as by the progress made with fiscal consolidation and structural reforms,” he said, according to media reports.

A Swing to Profit, But… Bank of America (BAC), the second largest by assets in the U.S., said Wednesday it swung to a Q1profit as it started to break free from a legal-expense albatross of prior years. The lender reported a profit of $3.36 billion, or $0.27 per share. That compares with a loss of $276 million, or $0.05 per share, in the same period of 2014. Analysts polled by Thomson Reuters had expected earnings of $0.29. There was another miss and this one has generated plenty of Street buzz. Revenue fell to $21.42 billion. Analysts had expected $21.51 billion. The bank noted compromised lending income from ultra-low interest rates. The bias is toward higher U.S. interest rates over coming months but that policy shift will likely be slow.

Intel Upbeat on Full-Year Revenue. Another example of the weight that Wall Street is putting in revenue: Intel (INTC). INTC is getting an early share boost and plenty of ratings upgrades from analyst shops that believe a PC bottom is in and that data-center growth could help this chip-maker.  Intel reported late Tuesday Q1 earnings that were in line with expectations but it also provided a full-year revenue outlook that is above current projections.

Good trading,

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