Stocks today will likely continue the negative momentum from
the Thursday sell-off, with the strong
) report unlikely to offset the sour mood created by the big
) miss. With the 2014 Q1 earnings season getting into high gear
next week -- with 57 S&P 500 members reporting results -- the
uncertain corporate earnings picture may finally be catching up
with this market.
There wasn't much surprise in the banks' mortgage banking
woes, with revenues in the business down 76% for J.P. Morgan from
the same period last year. J.P. Morgan isn't expecting to make
any money from its mortgage banking operations this year. Wells
Fargo was no better, with mortgage originations down -67% from
the same period last year, though a bigger part of their mortgage
portfolio funds home purchases that is holding up better relative
to the refinancing business.
The key difference between these two banking leaders is their
capital markets exposure - J.P. Morgan is a big capital markets
player, while Wells isn't much of one. The capital markets
weakness was very pronounced for J.P. Morgan, with revenue in the
business down 17% year over year, on persistent weakness on the
fixed income side. J.P. Morgan's weak capital markets results
have negative read-throughs for
Bank of America
), who report next week and have big fixed income
On the positive side, business banking loans were up in the
quarter for both banks, though Wells Fargo showed more momentum
on that front. J.P. Morgan and Wells Fargo's business loan
results are in-line with what we have been seeing from Federal
Reserve data as well that show growth in commercial &
industrial and commercial real-estate loans in March after a slow
start to the year. The consensus view is pinning hopes on
material gains under these categories in the coming quarters,
with the consumer side only slowly picking up.
After many quarters of strong growth, bank earnings are
expected to be down in Q1, as they are for the broader S&P
500 as a whole. Total Finance sector earnings are expected to be
down -8.7% from the same period last year, with earnings for the
banking industry (the largest in the sector) expected to be down
The market may not have been looking for much earnings
momentum in Q1, but hopes for the coming quarters remain high,
with growth expected to ramp up in the back half of the year.
Beyond Finance, expectations for the broader S&P 500 index
are no different, with the Q1 earnings decline followed by
positive growth in Q2 and a material ramp up in the second half
of the year that then continues into 2015.
Nothing new in this earnings outlook. Consensus expectations
have been hoping for an earnings-growth ramp-up in the outer
quarters for almost two years, but they wouldn't get overly
disappointed when growth doesn't show up. And we know that the
market covered quite some ground over the last two years.
Hard to tell whether the ongoing sell-off is the market's way
of finally coming to grips with this underwhelming earnings
outlook or just a minor hiccup on the way to even higher levels.
We will find out soon enough, but stocks don't typically keeping
moving up while estimates are coming down, as has been the case
for almost two years now.
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