The first quarter earnings season is finally here. And one way or another, all of the concerns investors and analysts have had regarding a slowing global economy have all by disappeared — with the caveat being “for now.”
Driven by a solid March jobs report, which showed that the U.S. economy added 196,000 new jobs, topping consensus expectations of 177,000, stocks rose again Friday, helping the S&P 500 index to log its longest winning streak in eighteen months. Investors were pleased with the fact that the U.S. unemployment rate held steady at 3.8%, according the Labor Department. Combined with positive comments on prospects for a U.S.-China trade deal, stocks ended the week on a strong note.
The Dow Jones Industrial Average on Friday gained 40 points to close at 26,425. The blue chip index ended strongly after dipping into negative territory in early trading and now stands roughly just 1.5% shy of its Oct. 3 record close at 26,828.39. The S&P 500 index edged up 13.35 points, or 0.46%, to 2,892.74, netting its seventh consecutive session of gains, while the Nasdaq Composite Index added 46.91 points, or 0.59%, to close at 7,938.69.
What does this all mean? Obviously, from an investors perspective, there’s now positive sentiment about not only the direction of the economy in general, but also what it means for corporate profits — particularly as the first quarter earnings approaches. But investors shouldn’t make the same mistake and expect too much too soon. It has taken the better part of six months for stocks to reach what some analysts are now calling “fair value."
I won’t go so far to say that rallies could be short-lived. But in the coming weeks, for example, we should learn relatively quickly how the market truly feels about the Fed’s new stance on interest rates. At its late-January policy-setting meeting, a dovish Fed made it clear that it was hitting the pause button on rate hikes and will take a more deliberate approach in that regard.
While the new tone allayed fears about an economic disruption, it could be problematic for banks, diversified financials and insurance companies, which are due to report earnings results this coming week and next. Here are names to keep an eye on.
JPMorgan Chase (JPM) - Reports before the open, Friday, April 12
Wall Street expects JPMorgan to earn $2.37 per share on revenue of $28.54 billion. This compares to the year-ago quarter when earnings came to $2.37 per share on revenue of $28.52 billion.
What to watch: Commercial bank stocks have not performed as well as prior estimates suggested, given that the Fed has opted to keep interest rates steady for the rest of 2019. JPM stock, meanwhile, has been one of the better performers, rising 8% year to date. The bank’s consistent execution, along with its plans to take on the discount brokers with its new commission-free arrangement has been applauded. On Friday analyst will focus on the bank’s guidance in light of “lower for longer” scenario and gauge how well the bank plans to deliver growth this year and beyond.
Wells Fargo (WFC) - Reports before the open, Friday, April 12
Wall Street expects Wells Fargo to earn $1.10 per share on revenue of $21 billion. This compares to the year-ago quarter when earnings came to 96 cents per share on revenue of $21.93 billion.
What to watch: In the wake of CEO Tim Sloan’s departure, Wells Fargo has decided to appoint an outsider as his successor. Wells Fargo stock popped a little bit after the news was announced, but not by much. It remains to be seen who that person will be. This topic is of most importance to Warren Buffett. With over 440 million shares of WFC stock, the Berkshire Hathaway (BRK.A, BRK.B) CEO is currently the bank’s largest shareholder. Reports suggest the beleaguered bank is scouring talent at rival firms such as Bank of America (BAC), Citigroup (C) and JPMorgan. Wells Fargo still has a long way to go to earn Wall Street’s trust, but the troubled bank, which still has a strong underlying business, could be a solid holding for the next 12 to 18 months.
PNC Financial (PNC) - Reports before the open, Friday, April 12
Wall Street expects PNC to earn $1.10 per share on revenue of $21 billion. This compares to the year-ago quarter when earnings came to 96 cents per share on revenue of $21.93 billion.
What to watch: PNC shares have fallen almost 8% in six months as worries about the bank’s growth strategy continue to mount. While the bank has done a solid job in the earnings department in recent quarters, the earnings beats were largely driven by a combination of lower tax rates and credit quality — not the kind driven by, say, loan growth, investors would like to applaud. And with the impact of higher interest rates now off the table, analysts will want to see the extent to which PNC — which has a reputation as a high-quality bank — can come up with a disciplined growth strategy that it can execute.