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Corporate earnings in focus

By David Morrison  |  15/01/2019 16:05

The first of the big US banks have announced disappointing fourth quarter earnings. But investors don’t seem particularly bothered
Ahead of today’s US open JP Morgan announced a quarterly profit which fell below the consensus forecast for the first time in nearly four years. The biggest US bank posted earnings per share of $1.98, well below the $2.20 anticipated. Revenues came in at $26.8 billion which was pretty much in line with expectations. Nevertheless, analysts were concerned that trading revenues (fixed income, currencies and commodities) came in at $1.86 billion for the fourth quarter – well below the $2.29 billion anticipated. Yesterday Citigroup also reported a sharp drop in trading revenues which fell to their lowest level since 2011, coming in at $1.94 billion versus an expectation of $2.23 billion. This weighed on overall revenues which dropped to a two-year low of $17.1 billion, missing the consensus estimate of $17.6 billion. Meanwhile, Wells Fargo (until recently the US’s largest mortgage lender) reported a sharp decline in mortgage activity, which, at $18 billion in the fourth quarter, is at its lowest level since early 2009.
Investors shrug off worries
But if these first major announcements in the US corporate earnings season are harbingers of disappointments to come, you wouldn’t know it by investor reaction so far. Soon after the open the S&P 500 broke above 2,600 to hit its highest level since 17th December. This was when the index finally broke below the ‘triple bottom’ which had formed between October and December last year. This break was followed by the sell-off which took the S&P to within a few points of 2,300 and its lowest level since February 2017. So, the question now is whether the S&P can close and hold above 2,600 this week. If it can then there’s still plenty of significant resistance to overcome, including the 50% retracement level of the October-December sell-off, and then the 50, 100 and 200-day moving averages before the index can challenge the old ‘triple top’ at 2,800. A failure for the S&P to break and hold 2,600 raises the probability of another pull-back. Certainly, worries over slowing global growth, the US-China trade disagreement, the US government shutdown, the Fed’s balance sheet reduction and the possibility of weaker-than-expected corporate earnings are all headwinds. But investors have short memories, and many are still looking for any excuse to buy back into this market now it has come off its top. A resolution to any of these market worries could see equities take off again. However, there’s a growing number of traders who will be only too ready to try and knock this market back down to its lows from last year.
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