The earnings season starts off slowly this week with Alcoa reporting after the bell today. Later on this week we will see reports from many banks.
The first trading day of the year didn`t start good, and the first 10 trading days of 2016 slid 8% on S&P 500 Index. That is the worst start to any trading year over the long history on this index dating back to 1928.
In the middle of February, the stock market turned up again. Stock turned down 10,5% in a stock market correction but went straight up again, rallying 13,5% off the lows. The European market didn`t follow, and the biggest losers in Europe is the banking sector.
Sweden, Denmark, Switzerland and Germany have negative interest rate, and banks are suffering from that, which means profit margins are under pressure. So is it for the U.S banks. They are suffering too. The S&P 500 Financial Sector is one of the worst performing domestic sectors, down about 5% YTD.
S&P 500 is near its 2015 peak and corporate profits will drive the stock prices and market. But is it going up or down? First quarter earnings expectations is not the best I have seen, and this will be the first time S&P 500 has had four-straight quarter of declining profitability since the Great Recession in 2008.
According to Merril Lynch, the three-month earnings revision ratio improved during March for the first time since last July. The downward momentum of profit estimates has also slowed. On the other hand; Wall Street are cutting more company earnings estimates than they are increasing.
It can be helpful to look at earnings revisions going forward rather than current quarter earnings results.
Wall Street analysts are less negative about the profit for the big U.S stocks, and this is why Dow Jones Average has been outperforming with all its multi-national blue chips. Their overseas sales are increasing because of a weaker dollar which is helpful for a bigger demand.
Three winning sectors over the past three months is industrials, materials and health care. Materials and health care has been lagging the S&P 500 last year and improving earnings can help both sectors to increase again.
The country`s largest bank JPMorgan Chase & Co will report on Wednesday. Bank of American and Wells Fargo & Co on Thursday, and Citygroup Inc on Friday. Investors will wait for reports from Morgan Stanley on Monday next week and Goldman Sachs the following day.
Banks typically earn about one-third of their annual revenue during the first three months of the year, but some of the banks (Goldman) is expected to come in with the lowest first-quarter earnings since before the financial crisis.
JPMorgan is expected to report adjusted earnings of $1,36 per share, Bank of America $0,25 per share, Wells Fargo: 99 cents per share, Citygroup: $1,11 per share, and Morgan Stanley: $0,63 per share. Goldman Sachs: 3,00 per share.
Banks have a lot of challenges.
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