Evening market comment: US banks show impressive earnings growth

Equities bounce back

Equity markets have some bounce in their step again as the onslaught from earlier this week came to an end. Most are trading lower than they did at the beginning of the week, the trend in US equities is to the upside rather than the punishing decline seen Wednesday and Thursday.

US banks show impressive earnings growth

The Dow Jones Industrial Average regained over 200 points on the day helped by solid figures from JP Morgan, Wells Fargo and Citibank, the big three banks that are the first to report in this round of quarterly earnings. JP Morgan’s results are showing the real strength of the US economy and the American consumer, its net income rose 24% on the year particularly on the retail banking side at its Chase division.

The earnings didn’t translate into a sustained rally in shares however, and although the banks traded higher after the release of the numbers, Citigroup made only a 0.7% gain in the afternoon and JP Morgan slipped by 0.15%.

The underlying US economy is still growing at a good clip, as seen in the University of Michigan Confidence Index, but the numbers are less heady than a month ago. The index is still above the average for this year and at a relative high but the decline indicates slightly lower expectations going forward. This may be a good thing for the stock markets. Now that some froth has been taken out of equities the slightly more down-to-earth economic data will still underpin future share price growth.

GE delays results release

In an unusual move Wall Street stalwart GE decided to delay the release of its corporate earnings by five days to give its new chief executive Larry Culp enough time to make an assessment of the business. Culp has only just taken over the helm from previous CEO John Flannery and has to deal with a company facing declining sales in its key markets including gas turbines, reduced cash flow and lower earnings. GE’s turnaround strategy put in place at the end of November last year didn’t yield much by way of a turnaround, instead the company announced lower guidance in several segments of the business and finally lower earnings targets for the year. GE didn’t meet with much sympathy from investors and shares fell over 8% during the week.

Italian budget weighs on euro

The on-going Italian debt issues are weighing on the euro and the common currency slipped against the greenback to a session low of 1.1551 after the Italian parliament passed a new budget bill. The proposed legislation will still need to be approved by the government and then it will head to the European Commission on Monday where it is likely to face a non, nein and no as it remains in breach of the EU debt target. The euro could face more volatility next week as the saga plays out.