Wednesday, January 15, 2014
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
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
) 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%.
BANK OF AMER CP (BAC): Free Stock Analysis
CITIGROUP INC (C): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis
WELLS FARGO-NEW (WFC): Free Stock Analysis
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