Tuesday, April 18, 2017

Markets slump on disappointing results at Bank of Amera and Goldman Sachs

Dow sank 113 (well off the lows), decliners just ahead of advancers & NAZ lost 7.  The MLP index went up a fraction to go over 320 & the REIT index added a fraction to the 356s.  Junk bond funds fluctuated & Treasuries rallied, taking the yield on the 10 year Treasury under 2.2%.  Oil was off pennies in the 52s & gold was flattish at 1290.

AMJ (Alerian MLP Index tracking fund)

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Johnson & Johnson’s (a Dow stock & Dividend Aristocrat) disappointing Q1 sales highlighted why the world's largest health-care company made its biggest-ever deal earlier this year.  3 key drugs fell short of estimates.  And while the blockbuster arthritis treatment Remicade avoided a major slump, sales still dropped 6% from a year earlier during the first full qtr in which the treatment faced competition from a copycat version of a drug known as a biosimilar.  One qtr is still early to assess how big an impact the Remicade copycat will have on its biggest drug in the coming years, but it is anticipated it will make a major dent in 2019 & 2020.  With other medicines slowing down, JNJ made a bold bet in Jan with the $30B purchase of Swiss drugmaker Actelion, a leader in treatments for a rare type of high blood pressure that fulfills its goal of gaining a new drug category.  While biosimilars have long been approved in Europe, they're still new in the US.  That helps explain why Remicade's Q1 sales, while dropping, still did better than the 8.7% slump predicted.  CFO Dominic Caruso said the company anticipated that Remicade would hold its ground against the competition from Inflectra.  “We did not anticipate we would see much of an impact, and we didn’t,” he said.  “It’ll take time for physicians to get comfortable prescribing a biosimilar to new patients."  Sales of blood thinner Xarelto, diabetes medicine Invokana & cancer drug Zytiga , which are among the company's 10 top-selling treatments, disappointed last qtr.  JNJ also increased its annual sales forecast to reflect the Actelion purchase, from $75.4B to $76.1B.  JNJ also raised its EPS outlook to $7-7.15, excluding some items.  Analysts anticipated $7.05.  In Q1, EPS of $1.83, excluding some items, beat the estimate of $1.77.  The company continues to explore the possibility of selling or finding a partner for its diabetes-care business.  The stock slumped 3.90.  If you would like to learn more about JNJ, click on this link:

J&J's Weak First-Quarter Sales Show Why It Made a Megadeal

Johnson & Johnson (JNJ)

Bank of America posted a 40% increase in Q1 profit, fueled by stronger trading revenue, & added employees for the first time in more than 5 years as CEO Brian Moynihan expressed optimism about the US economy.  Fixed-income trading revenue rose 29% to $2.93B, beating the $2.6B estimate.  Equity trading revenue also was better than expected, climbing 7.4% to $1.1B.  “The U.S. economy continues to show consumer and business optimism, and our results reflect that,” Moynihan said.  The bank added 549 employees in Q1, the first increase since 2011.  Net interest income climbed 5.5% to $11.1B from a year earlier, exceeding the firm's forecast.  Net interest margin, the difference between what a bank charges for loans & pays depositors, rose 16 basis points to 2.39 percentage points from the prior qtr, the biggest jump among large US banks.  The firm expects a $150M increase in interest income in Q2 from the previous 3-month period, CFO Paul Donofrio said.  EPS jumped to 41¢, from 28¢ a year earlier.  That beat the 35¢ estimate.  Revenue increased 7% to $22.2B, also more than estimated.  Expenses rose less than 1% to $14.8B, higher than expected, while the firm's efficiency ratio weakened about 1 percentage point to 66.15%.  “We grew the top line, and we grew the bottom line, and we did it the right way,” Moynihan said. “All of that will bode well for future growth.”  Profit from the global markets division, which houses the bank's trading units, climbed 33% to $1.3B & investment-banking revenue rose 37% to $1.58B (compared with $1.41B estimate).  The stock was off a dime.  If you would like to learn more about BAC, click on this link:

BofA Profit Jumps 40% as Fixed-Income Trading Tops Estimates

Bank of America (BAC)

Goldman Sachs, a Dow stock, said it booked EPS of $5.15, higher than the $2.68 it earned during the same period of 2015, but below expectation for $5.31.  Revenue, meanwhile, came in at $8.02B, 27% above the year ago period, but also missing the estimate of $8.44B.  Weighing on the bank's results was a 2.4% decline in trading revenue to $3.36B as revenue from trading for clients in bonds, currencies & commodities, a closely watched metric due to its importance to the company's core trading business, rose just 1% from the 2016 period.  Revenue from equities trading was down 6% from the year prior, which can be attributed to the decline in overall market volatility after the US elections.  CFO Martin Chavez said the market was thrown into a period of “recalibration” in the first 3 months of the year as investors reassessed US economic strength & growth potential as they await upcoming European elections.  For GS, that meant underperformance during the qtr was driven primarily by a 2-year low both in volatility for the $-€ & crude oil trades.  Execs said while they “didn’t navigate the market well” during the period, “no quarter defines the franchise.”  The stock plunged 10.67 (5%).  If you would like to learn more about GS, click on this link:

Goldman Sachs Shares Socked After Trading Hit by Global Political Uncertainty

Goldman Sachs (GS)

This was a tough day for the stock market, but it survived.  Disappointing earnings at the biggies always hurt, but Dow finished 70 above session lows.  Not bad all considered.  More earnings are coming & they will test the strength of the bulls.  Then there are the big intl unknowns with North Korea, Syria & Russia.  The stock market is taking all this drama reasonably well.  At other times, the bears would be in command.

Dow Jones Industrials


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