Some Cracks in the Q4 Armor? - Ahead of Wall Street


Thursday, January 16, 2014

The earnings backdrop for today's trading action is a little less reassuring than was the case the last few trading sessions. With Jobless Claims and Inflation data coming in largely as expected, today's mixed earnings picture will likely come in the way of the strong two-day momentum.  

This morning's bank sector results from Citigroup ( C ) and Goldman Sachs ( GS ) provide a mixed picture of the sector's profitability, unlike what we saw from J.P. Morgan ( JPM ), Bank of America ( BAC ) and Wells Fargo ( WFC ). Citi's miss reflected issues in its mortgage pipeline and fixed income trading business.

Goldman's overall results aren't that bad, but the Wall Street titan appears to be struggling in its core fixed income, currencies and commodities (FICC) franchise. Trading activities in those assets were no doubt challenging in Q4 and all of last year, but we saw decent FICC revenue gains from JPM and BAC in their results. This seems to indicate that Goldman may have lost market share to those firms.

In other results, Best Buy's ( BBY ) came out with disappointing same-store sales numbers for the holiday season. It seems that the company's strategic repositioning may have been a result of an aggressively promotional posture that may not be sustainable in the long-run given the need for bottom-line validation.

GameStop ( GME ) isn't facing the same type of headwinds, but that company has been under pressure as well following its week pre-announcement. The issue with GameStop reflects investors' exaggerated fears that its business model may not be sustainable in the face of newer service offerings from Sony ( SNE ) and Xbox.

Those concerns are justified, but we remain confident that the GameStop situation isn't analogous to the Netflix ( NFLX )/Blockbuster match-up from the recent past, and we should see evidence of that in the coming quarters.

Sheraz Mian
Director of Research

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Stocks , US Markets

Referenced Stocks: BAC , BBY , C , GME , GS

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