Friday, January 13, 2017

Markets edge higher after first bank earnings

Dow was off 5, advancers over decliners 3-2 & NAZ added 26.  The MLP index gained 1+ to the 319s & the REIT index was off pennies, but still above 340.  Junk bond funds inched high & Treasuries remained weak, taking the yield on the 10 year Treasury near 2.4%,  Oil slid back & gold was off a little.

AMJ (Alerian MLP Index tracking fund)

3 Stocks You Should Own Right Now - Click Here!

Live 24 hours gold chart [Kitco Inc.]

Americans are bringing their newfound confidence to car showrooms but not many other stores.  Data released Friday put on display the gap between a surge in sentiment after Trump's election & the household spending that makes up the biggest part of the economy.  The strongest gain in purchases at motor-vehicle dealers since Apr allowed retail sales to climb 0.6% in Dec, yet excluding autos & gasoline, sales were unchanged.  Consumer sentiment hovered this month near an almost 13-year high, according to a Univ of Mich survey.  While improvement in jobs & wages should continue to support consumers' wherewithal to spend, the disparity between confidence & spending puts pressure on Trump & Congress to implement policies that deliver on their pro-growth campaign promises.  The retail figures signal that consumer spending entered 2017 with less momentum than sentiment data suggest.  The Mich sentiment numbers show that Americans continue to expect that Trump's administration will help kick growth into a higher gear with an agenda heavy on deregulation & tax reform.  The index of the 6-month outlook in Jan was near the highest level in almost 2 years & the measure of current conditions was the strongest in more than a decade.  Even as retail sales fail to match the confidence gains, consumer spending is projected to keep a steady pace as the US economy approaches what would be the 9th year of the expansion.

Sentiment Trumps Shopping as Americans Buy Autos, Not Much Else

Bank of America boosted its forecast for interest income after reporting that Q4 profit rose 43% on improvements in credit quality & continued cost-cutting.  Net interest income is expected to increase by about $600M in Q1, CFO Paul Donofrio said, helped by the Federal Reserve’s qtr-point rate hike in Dec.  The lender said revenue from interest-related products rose 6.3% to $10.3B in Q4.  Fixed-income trading revenue climbed to $1.96B, missing the $2.1B estimate.  While mortgage-bonding trading was strong, there was less activity municipal debt & gove securities.  Equity trading rose 11% to $948M, in line with predictions.  CEO Brian Moynihan has been cutting costs for years while contending with persistently low interest rates.  That's starting to pay off as security firms benefit from a rebound in fixed-income trading & the company moves beyond epic legal claims over mortgages that soured in the financial crisis.  The bank last year set a target of $53B in annual expenses by the end of 2018, 8% less than 2015.  EPS rose to 40¢ from 27¢ a year earlier.  Results were helped by a net tax benefit of about $500M.  EPS, excluding the tax benefit & accounting adjustments, was 37¢ versus the estimate adjusted EPS of 38¢.  Total revenue increased 2.1% to $20B, missing estimates by $800M.  Expenses fell 6%, more than expected, to $13.2B, helped by declines in compensation & data-processing costs.  Provisions for loan losses fell $36M from Q3 to $774M, better than estimated, while net write-offs dropped $220M to $880M.  The bank also released about $106M of reserves for bad loans as energy & consumer real estate improved.  The stock was up pennies.  If you would like to learn more about BAC, click on this link:

BofA Raises Forecast for Interest Income as Profit Climbs 43%

Bank of America (BAC)

JPMorgan Chase, a Dow stock, Q4 rose 24% as the biggest US bank set aside less money for bad loans & bond-trading revenue increased more than estimated.  Earnings benefited from better credit quality among US consumers & corps, allowing the bank to pull $400M from bad-loan reserves in the mortgage, energy & metals businesses.  Fixed-income trading also contributed to the gains.  CEO Jamie Dimon said last month that bond & stock trading volume was “much better” after the election.  EPS increased to $1.71 from $1.32 a year earlier.  Adjusted EPS, which exclude a $475M tax benefit, legal expenses & an accounting adjustment, was $1.62, beating the $1.43 estimate.  The provision for credit losses was $864M, better than the $1.39B estimate & down from $1.25B a year earlier.  Revenue rose 2% to $24.3B, eclipsing the $24.2B estimate.  Expenses fell 3% to $13.8B, compared with the $14B estimate.  The stock went up 39¢.  If you would like to learn more about JPM, click on this link:

JPMorgan Profit Beats as Loan Quality, Bond Trading Improve

J P Morgan Chase (JPM)

The first bank earnings are coming in somewhat favorable, but also largely indecisive.  Uncertainty surrounding Trump's new administration is casting a shadow over the stock market & that is holding back a further advance by the Dow.  However the tone of a pres who wants to grow the economy & is fighting should be a plus for the stock market in 2017.  Consumer confidence data should also be a solid plus for the economy going forward.

 Dow Jones Industrials

stock chart  

No comments: