Stocks had a positive session on Tuesday after selling off in
the preceding two sessions. Pre-open sentiment is indicating a
modestly positive open, but the overall mood remains tentative as
the market nervously awaits the Q1 earnings season.
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(AA) came out with a fairly decent earnings release after the
close on Tuesday, but that tells us little about to what the rest
of the earnings season will bring. Including the Alcoa release,
we now have 2014 Q1 results from 23 S&P 500 members. Total
earnings for these 23 companies are up +14.4%, with 60.9% beating
EPS expectations. Total revenues for these companies are up +6%
and 43.5% are coming ahead of top-line expectations. Hard
to draw any conclusions from this sample of reports, but the
growth rates thus far from these companies are lower than what we
saw from the same group of companies in recent quarters.
The reporting cycle gets into high gear next week with almost 60
S&P 500 members reporting results, but the bank sector
reporting season will get underway with results from
(WFC) this Friday. The Zacks Consensus EPS estimate for JPM has
weakened a bit in recent days while WFC's estimate has improved a
The overall level of Finance sector's earnings in Q1 will remain
very high, but still remain below the year-earlier level. Most of
earnings gains thus far have come from expense controls and
reserve releases, with net interest margins still under pressure
and the mortgage refinancing business steadily going down. Loan
demand continues to remain to tepid, with growth barely in the
There is some improvement on the commercial loan side, but we
have yet to see any material improvement on the consumer loan
side. The consensus expectation is for the resumption of stronger
loan growth later this year and beyond, with loan growth
accelerating to the mid-single-digit pace in the second half of
2014 and even higher next year. This optimistic outlook, a
function of above-trend growth expectations for the U.S. economy,
is also expected to drive overall earnings growth in the back
half of the year and beyond.
Corporate guidance on the Q1 earnings calls will determine how
expectations for the coming quarters will evolve. But if past is
any guide, we will most likely see those estimates come down as
the Q1 earnings season unfolds. All the more reason for
investors to start nervous about the earnings picture.