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Bank of America, Wells Fargo Earnings In Focus After Rally To 2016 Highs

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April 14, 2016

(Thursday Market Open) Financial stocks led a big rally Wednesday, but mixed results from Bank of America (BAC) and Wells Fargo (WFC) brought a lack of conviction early Thursday. The stock market opened not far from flat after Wednesday’s sprint to 2016 highs.

Unlike Wednesday’s better than expected earnings from JP Morgan Chase (JPM), the numbers from BAC and WFC presented more of a mixed picture. WFC beat estimates, but not by as much as JPM, leaving bullish investors a little disappointed. BAC results were mixed.

BAC reported earnings of 21 cents, compared to expectations for 20 cents, but suffered sharp losses in stocks, bond, currency and commodities trading revenue, leading to lower than expected adjusted revenue. WFC’s earnings came in at 99 cents, a penny above consensus. Revenue was a little better than expected. Few investors expected either BAC or WFC to have great quarters. Low interest rates hurt bank margins, a vigorous regulatory arena constrains operations, and the crumpled energy industry pressures loans.

During BAC’s post-earnings call, CFO Paul Donofrio said the economy and consumer “are slowly improving,” the trading environment is better, and that the bank was able to grow loans, The Wall Street Journal reported. It will also be interesting to monitor what both companies’ executives have to say about when interest rates might rise and how it might affect their businesses. The key isn’t so much what has already happened, but what might happen in the future in this sector. Citigroup (C) reports before tomorrow’s open, and once again, analysts’ expectations are for much lower profits than a year ago.

Oil was a bit higher, with the market buffeted by a lower demand growth estimate from the International Energy Agency and by hope for a production freeze at this weekend’s producers’ meeting. Once again, crude prices seem to be guiding the equities market to some extent.

The Consumer Price Index (CPI) for March came in up 0.1%, with higher energy prices providing a slight boost.

Atlanta Fed President Dennis Lockhart said this morning that he wouldn’t support an April rate hike. Remember, Lockhart was one of the Fed officials who last month had discussed the possible need for an April rise in rates. But MarketWatch reported he’s changed his mind.

 

S&P 500

FIGURE 1:

The S&P 500 (SPX), plotted here through Wednesday on the TD Ameritrade thinkorswim® platform, soared to new highs for2016.. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Down the Hatch - More Data Digested: In this data-heavy week, the numbers just keep rolling in. After Wednesday’s retail sales and Producer Price Index (PPI) readings came out in the early morning, late morning saw the release of business inventories and weekly U.S. crude oil inventories. Business inventories fell 0.1% in February, in line with expectations. The report noted rising inventories of automobiles, not too surprising considering the slow pace of auto sales noted by Wednesday’s retail sales report. Meanwhile, oil inventories rose more than 6 million barrels, the Energy Information Administration (EIA) reported Wednesday, building on already record supply levels. But gasoline inventories fell much more than expected as demand remained robust, giving oil traders both bullish and bearish numbers to juggle.

Why Are Car Sales Stalling? U.S. auto sales fell more than 2% from February to March, the Commerce Department said Wednesday in its retail sales report. And the annual gain of 1.4% was the lowest since 2010. Why is this, considering low gas prices and the easy interest rate environment that’s kept car loans relatively cheap? First, remember that the stock market took a dive early this year, which may have kept some potential buyers nervous about making big purchases. Also, there were record automobile sales of 17.5 million last year, so it’s likely that many people who needed new cars already bought them, and have other things to spend on now. Some of the more optimistic auto industry watchers think U.S. car sales can continue to boom, especially considering the average age of an automobile on the road is more than 11 years, the highest in history. But the industry is on pace for 2016 sales of less than 17 million at this point.

SPX Hits New 2016 Highs But Still Trails Year Ago: Though the S&P 500 Index (SPX) reached new highs for the year above 2080 on Wednesday, the index remains below year-ago levels, when it was trading slightly above 2100. Wednesday’s gains were led by the financial sector, which rose more than 2% on the day, but it’s partly due to the financial sector’s weak performance, down more than 7% year over year, that the SPX remains lower than it was a year ago. Even with Wednesday’s gains, the financial sector remains among the worst performers over the last year.

Good Trading,
JJ
@TDAJJKinahan

Economic Report Calendar

FIGURE 2: THIS WEEK'S ECONOMIC REPORT CALENDAR.

Source: Briefing.com

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JJ began his career in 1985 as a Chicago Board Options Exchange...

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