January 16: All Eyes on Bank Earnings

Investors have a slew of data to chew on today, ranging from earnings reports from J.P. Morgan (JPM) and Goldman Sachs (GS) to a benign-looking inflation reading. Also on tap for release a little later are Industrial Production and Homebuilder Sentiment Index readings, both of which are expected to show gains from the preceding months. The Fed’s Beige Book will also come out this afternoon.

But the focus today is on bank earnings, headlined by positive earnings surprises from J.P. Morgan and Goldman Sachs. While Goldman’s results show all-around strength, the market may not be as enthusiastic about JPM’s results given the shortfall on the revenue front and net interest margin pressures. Results at U.S. Bancorp (USB) were along the lines of JPM, beating on earnings, but coming short on the top line.

Earnings growth expectations for the Finance sector as a whole had come down in recent days following the banks’ major foreclosure related settlement, with the negative revision particularly pronounced for Bank of America (BAC) which experienced a roughly $2 billion negative swing in expected earnings. But the roughly 43% increase in JPM’s fourth quarter earnings this morning should help offset some of that weakness. As of this morning, the composite fourth quarter earnings growth for the Finance sector (combining the results that have come out with those still to come) stands at 9.2%. This compares to earnings growth of +23.3% for the sector in the third quarter.

The overall scorecard for all sectors shows a total 36 fourth quarter 2012 earnings reports as of this morning, with total earnings growth for this Finance-heavy group of 36 companies at up +22.8% from the same period last year. Outside of Finance, total earnings growth for the 36 companies that have reported results are up only +2% from the same period.

It is still admittedly early going for the fourth quarter reporting season, but what we have seen thus far is better than what these same companies did in the previous quarter. In terms of surprises, 58.3% of the companies have beat earnings expectations with a median surprise of 1.6%. Revenue surprises, which were a big disappointment in the previous quarter, are running at a respectable 52.8% at this stage.

The market has sustained the positive momentum from last year into these early days of 2013. But sustaining the trend in the coming days will depend on how the fourth quarter earnings season unfolds. And of course, we have the big debt ceiling issue staring us in the face that could potentially be quite unsettling for the market.

Crude Inventories are scheduled to be released today at 10:30 AM EST. For the week ending January 4, crude inventories increased by 1.3 million barrels from the previous week to 361.3 million barrels.

 

 

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