First Round Of Big Bank Earnings Not As Bad As Feared

From Brad Hoppmann: The equity markets have been mired in uncertainty this week, as geopolitical hotspots Syria, North Korea and Afghanistan all have caused a bit of a risk-off trade in stocks.

Then there are the homegrown policy concerns still plaguing Wall Street, including healthcare reform and corporate tax reform. After saying he would pivot to tax reform following the recent Congressional failure on healthcare, President Trump now appears to be renewing his efforts on the healthcare front.

While the geopolitical and policy uncertainty abroad and in Washington are weighing down stocks here, what we really need to start seeing is a return to good earnings to let us know what’s next for markets.

Thursday, we got the first salvo in the Q1 earnings bombardment, and we got it in the form of earnings from several key financial bellwethers.

For those wanting to see positive hard data start to back up the recent positive sentiment indicators, today was a pretty good day.

Three of the four major financials reporting today bested estimates, including JPMorgan Chase (JPM), Citigroup (C) and PNC Financial Services Group (PNC).

So, is this ray of earnings light from these banks enough to illuminate the way forward for the bulls?

That’s an upbeat sign for the economy and markets going forward.In the case of JPM, it reported EPS of $1.65 on revenues of $25.6 billion in Q1. This easily bested expectations. On the revenue front, JPM saw a 34% year-over-year gain to $1.65 billion in its investment banking operation.

JPMorgan’s high-profile CEO Jamie Dimon also made some upbeat comments about the quarter, and about the future of the bank and the economy in the firm’s earnings release.

“U.S. consumers and businesses are healthy overall and with pro-growth initiatives and improving collaboration between government and business, the U.S. economy can continue to improve … We will be there to do our part, strong and steadfast in good times and bad, and working every day to support our clients and our communities.”

Dimon also noted that the bank’s consumer businesses continued to grow. The bank saw $622.9 billion in deposits, up 11% year-over-year. Loans also increased by 5% to $466.8 billion.

“The consumer businesses continue to grow core loans at double-digits, outperform the industry in deposit growth, and we once again had very strong card sales volume growth this quarter — reflecting our commitment to providing our customers the innovative products and services they want.”

The JPM loan metrics are encouraging, as they somewhat contradict the recent data we presented in Tuesday’s Afternoon Edition, “How Come Nobody Wants to Borrow Money?”

As for the other financials reporting Thursday, there were good metrics from Citigroup (C), which bested estimates on both the top and bottom lines.

The company reported quarterly profits were up 17% from the same quarter a year ago, driven by higher revenue and the lower cost of credit.

C’s top line increased 3% to $18.1 billion, beating estimates of $17.8 billion. On the bottom line, EPS roared in at $1.35 vs. estimates calling for just $1.24.

PNC Financial Services Group (PNC) also posted an earnings beat, with EPS of $1.96 vs. estimates for just $1.84. Revenue for the quarter also was strong at $3.88 billion, a 6% rise year over year, and better than the $3.77 billion analysts were anticipating.

The only financial stock that didn’t knock it out of the park was embattled money center bank Wells Fargo (WFC).

Not surprisingly, the phony account scandal took its toll on the bank’s top and bottom lines. Still, Q1 profit managed to come in flat even though revenue fell short of estimates.

The bottom line here is that this first round of bank earnings is encouraging. And despite the noise of geopolitical tensions and Washington policy concerns, hard economic data might actually be OK for Q1.

At least, that’s what the bulls are hoping for.

The Financial Select Sector SPDR Fund (NYSE:XLF) closed at $22.90 on Thursday, down $-0.30 (-1.29%). Year-to-date, XLF has declined -1.51%, versus a 4.02% rise in the benchmark S&P 500 index during the same period.

XLF currently has an ETF Daily News SMART Grade of B (Buy), and is ranked #9 of 38 ETFs in the Financial Equities ETFs category.

This article is brought to you courtesy of Uncommon Wisdom Daily.

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