A remarkable start to 2018 continued for stocks on Friday. The Dow Jones Industrial Average (DJINDICES: ^DJI) had a 200-point-plus gain for the second day in a row, and the S&P 500 (SNPINDEX: ^GSPC) also closed at a record.
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Consumer discretionary stocks led the way, with the Consumer Discretionary Select SPDR ETF (NYSEMKT: XLY) up 1.3%. Energy stocks had another strong day; the Energy Select Sector SPDR ETF (NYSEMKT: XLE) gained 1%.
Earnings season started in earnest today as several financial companies reported fourth-quarter results. Observers were watching for comments on the effects of the new tax law and rising interest rates, generally a positive for bank profits. JPMorgan Chase (NYSE: JPM) announced a large one-time charge, but core results beat expectations, and BlackRock (NYSE: BLK) revealed a big tax benefit along with strong quarterly results.
JPMorgan reports strong core business and a big tax charge
Excluding one-time items such as a massive charge due to the tax bill, banking giant JPMorgan Chase beat earnings estimates, and investors bid the stock up 1.7%. Net managed revenue for the fourth quarter increased 5% to $25.5 billion and earnings per share were $1.07, but would have been $1.76 without a $2.4 billion charge related to the change in tax law. Investors had expected EPS of $1.69 excluding one-time items on revenue of $25.2 billion.
Average core loans were up 6% and net interest income grew 11%, reflecting the benefit of rising interest rates as well as loan and deposit growth. Investment banking was a drag on results, with a 32% decline in profit to $2.3 billion. Fixed income trading was impacted by the new tax law due to losses on tax-advantaged investments, but revenue from that business was still down 27% excluding those effects. The equity trading business was hit with the writedown of a $143 million margin loan to a single customer.
Overall, results were not too different from what the market was expecting. Short-term charges due to the tax bill, softness in the trading business, and longer-term benefits from rising interest rates and lower taxes were the major themes that netted out to a positive outlook going forward.
BlackRock beats on strong fund inflows
Shares of investment company BlackRock rose 3.3% after it announced Q4 results that beat expectations on both the top and bottom lines. Revenue rose 20% to $3.47 billion, compared with the consensus estimate of $3.32 billion, and adjusted EPS grew 21% to $6.24 versus expectations of $6.02.
Net inflows of $103 billion topped last quarter's inflows of $96 billion, and brought full-year inflows up to a record $367 billion. Thanks to strong equity markets, assets under management grew 22% in 2017, compared with an 11% gain in 2016. Adjusted operating margin was 44.8% this quarter, up from 44.4% a year ago but down slightly from 45% in Q3.
The new tax law resulted in a benefit to BlackRock of $1.2 billion in the quarter, and when included in the results, pushed GAAP EPS up to a whopping $14.07. The company also announced it is raising its quarterly dividend 15% to $2.88 per share, resulting in a yield of 2.1%.
"Full year net inflows represented 7% organic asset growth and were positive across client types, asset classes, major regions and investment styles," said Chairman and CEO Laurence Fink in the press release.
BlackRock's highly successful iShares ETFs continue to draw new investment and grow market share, and fans of the parent company's stock are doing well, too, with shares rising 38% in 2017.
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