Bank of America
) earnings report and the World Bank's growth upgrade provide the
backdrop for today's trading action. We will also likely see
further follow-through to Tuesday's favorable U.S. retail sales
numbers that eased concerns raised by the earlier soft jobs report.
The World Bank raised its global GDP growth forecast for 2014 from
+3% to +3.2%, with growth in the U.S., Japan and Europe offsetting
loss of momentum in emerging markets like China, India and Brazil.
If realized, this would be the strongest growth pace for the global
economy since 2010 and would represent a material acceleration from
last year's estimated +2.4% growth rate.
A key downside risk to the growth outlook reflects the impact of
the Fed's Taper on emerging market capital flows. A faster rise in
long-term interest rates as a result of the Fed's stimulus unwind
could cut emerging market capital flows by half or more, according
the to the Bank. Such a scenario would be particularly problematic
for the more vulnerable economies like Turkey, Thailand, South
Africa and others.
On the earnings front, Bank of America shares are up sharply in
pre-open after its better than expected top- and bottom-line
results, with the company reporting steady gains in its commercial
and investment banking businesses. While Bank of America has had to
face even more regulatory and litigation issues than
) and some of those still need to be addressed, there is a sense
that the bank may finally getting past problems.
Unlike J.P. Morgan and
), Bank of America remains a expense control story. Even though
expenses were on the high side in Q4, the bank appears on track to
meet its long-term goal, articulated in 2011, to squeeze out $8
billion annually from its cost base. Being the more domestic
centric relative to J.P. Morgan and
), Bank of America stands to benefit from the expected upturn in
the U.S. economic growth in 2014 and beyond.
Citigroup will be releasing results tomorrow, but with Q4 results
from Bank of America, J.P. Morgan, and Wells Fargo already out, the
Finance sector is off to a great start this reporting cycle. Total
Q4 earnings for these 3 big banks, which combined account for more
than a quarter of the sector's total earnings, are up +28% from the
same period last year on essentially flat revenues. Easy
comparisons for Bank of America account for most of the
The composite Q4 earnings growth rate for the sector, combining
the results from these 3 banks with expectations for those still to
report results, has moved up to +23.7%. The Finance sector is a big
driver of the expected +6.9% total earnings growth for the S&P
500 as a whole in Q4. Excluding Finance, Q4 earnings growth for the
S&P 500 drops to +3.4%.
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