Monday, July 14, 2014

Stocks appear on track to start today’s session in the green, maintaining the overnight action out of global markets. We don’t have much on the economic calendar today, but we will get two days of Fed Chair Janet Yellen testimony and a couple of key economic readings this week. Importantly, the Q2 earnings season really gets underway this week, with 60 S&P 500 members reporting results.

The market seems very happy with the Citigroup (C) report this morning – the numbers look particularly impressive once the $7 billion settlement with the Justice Department also announced today are excluded. The Citi report follows the positive earnings announcement from Wells Fargo (WFC) on Friday and precedes results from J.P. Morgan (JPM), Bank of America (BAC) and all the major regional players this week.

No major fireworks are expected from the sector, with total Finance sector earnings in Q2 expected to be down from the same period last year. Banks aren’t expected to report incremental improvement in margins or loans to offset the persistent weakness on the trading side and the roll-off of the mortgage refi business.

Citi’s investment banking results came in on the strong side, with trading revenues down less than what management had guided. This provides a positive read-through for J.P. Morgan and Goldman Sachs (GS).

Beyond the Finance sector, overall earnings growth expected in Q2 of a little over 3% is an improvement over what we got in the preceding quarter. But that’s not really saying much given how weak Q1 was. Estimates fell as the quarter unfolded, a trend that we has been in place for almost two years now.

But the magnitude of negative revisions in Q2 was on the lower side relative to other recent quarters, likely indicating the analyst community’s improving growth outlook which also shows up in the elevated expectation for the second half of the year. It will be interesting to see how estimates for Q3 evolve as management teams share their business outlook with the market.

Sheraz Mian
Director of Research


 
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Tickers in this Article: C, JPM, WFC, BAC, GS

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