Tag: JPMorgan Chase

It May Be Impossible for Earnings to Satisfy the Bulls Right Now

It May Be Impossible for Earnings to Satisfy the Bulls Right Now

Banks lag for second day even as JPMorgan, BofA top estimates Stretched valuations, tighter labor market pose headwinds While nobody doubts earnings are soaring, the question is whether they’re soaring enough to restore order in the stock market.
Stocks were mostly falling after companies released results, almost regardless of how good they were.
Among 29 members of the S&P 500 that announced earnings through Friday, even those that beat analyst estimates saw shares trail in first-day reactions, data compiled by Wells Fargo & Co. showed.
It trailed the market again Monday as results from Bank of America failed to impress.
Among S&P 500 companies that have reported this season, their stocks fell an average 0.7 percent on the first day after earnings, data compiled by Bloomberg show.
He found that equity returns have shown an inverse relationship with the measure.
The pace of GDP growth just topped the unemployment rate for the first time during this bull market and Paulsen forecast that the spread may reach as high as 2 percent “before long”.
Such readings have seen S&P 500 advancing at an annualized rate of 2.6 percent since 1950, down from 15 percent when the indicator showed negative readings, his study showed.
There is no question that this earnings season will at least meet expectations, thanks to tax cuts and economic growth, but investors should look deeper at the trend of profit margins for clues whether double-digit growth can sustain beyond the first half of 2018, said Mike Wilson, Morgan Stanley’s chief U.S. equity strategist.
“Robust earnings should help move the market higher, but watch for early signs of margin pressure as a harbinger of earnings growth deceleration later this year.”

Big Banks Fail to Impress Despite Earnings Beat

Big Banks Fail to Impress Despite Earnings Beat

Shares of JPMorgan Chase & Co. (JPM ), Citigroup Inc. (C) and Wells Fargo Corp. (WFC) all saw a significant dip Friday despite posting earnings results that beat consensus estimates for both top and bottom line numbers.
In Q1, analysts expected the S&P 500 to show profit gains of 17% year-over-year (YOY), while banks were projected to jump 28%.
(See also: 10 Financial Stocks Poised to Outperform.)
The sell-off suggests that banks failed to meet lofty targets demonstrated by investors confidence in financials over the past five years, driving the sector up 90% over that time and accelerating gains in the past year.
Rising rates, which were expected to provide a strong boost to banks, worked to increase interest income 10% for JPM and C in Q1, yet interest expenses were up in the 50% range.
Despite historically low levels of unemployment and a strong economy, loan growth was lackluster, as JPM’s lending business slumped 0.2% from the previous three quarters, WFC loans slumped 1% and Citigroup’s lending gained just 1%, attributed to an initiative to expand its struggling credit card business.
Higher rates failed to translate into a a jump in lending profits, with net interest margins remaining in the 3% range.
The story suggests that while interest rates were at historic lows, individuals took advantage and refinanced, perhaps borrowing even more than they needed.
This lull in loan demand explains a weakness across the board for the banks’ mortgage businesses in Q1.
The bank posted EPS of $1.12 on revenue of $21.9 billion, reflecting a dip from the year-ago period of $22.3 billion in sales, yet better than analysts’ expectations.

Doubts over U.S. bank capital payouts may cloud strong earnings

Doubts over U.S. bank capital payouts may cloud strong earnings

Eight years of U.S. economic growth have been a tailwind for banks, but the Fed has since 2013 made its stress test scenarios more challenging each year.
After first writing down deferred tax assets to account for a lower corporate rate, banks now face being prevented from carrying back losses in stress testing to past profitable quarters to benefit from tax rebates.
First-quarter net income for JPMorgan, Wells Fargo and Citigroup likely rose 34 percent, 5 percent and 12 percent, respectively, according to analysts surveyed by Thomson Reuters I/B/E/S.
Banks will likely see bigger reductions in projected capital levels in this year’s exam, a banking industry economist said.
In a March 2 supervisory letter, the Fed cited elimination of carrybacks as one reason the tax law could have “material” negative effects on some banks in this year’s stress test.
Goldman Sachs said in January that a key measure of capital shrank by 0.7 percentage points to 10.7 percent at Dec. 31 because of one-time tax charges, which included marking down deferred tax assets, such as credits against future taxes known as loss carryforwards.
In stress tests before the tax law change, carrybacks from losses could support capital levels and improve the odds of bigger approved buybacks.
To be sure, executives could flag offsets to those effects.
Goldman, like other banks with profits kept overseas, picked up deferred tax liabilities for so-called repatriation taxes it booked in the fourth quarter but had not yet paid.
JPMorgan and Citigroup are two big card issuers but have not discussed their outlook for payouts in light of the letter.