Mixed start to earnings season

Chris Beauchamp IG

The FTSE 100 and other European indices have seen a steady recovery from their session lows, and in the US investment banks are looking stronger following earnings from JPMorgan.

Earnings season openers boost JPMorgan but hit Wells Fargo
Indices fight to rebound from Monday’s volatility
Nasdaq still under pressure

European markets are off their lows while in the US the Dow is adding 200 points after shaking off yesterday’s mixed session. US earnings season has begun, and while there was plenty of bad news, the bounce in trading revenues (if ‘bounce’ can accurately describe the huge surge in activity for the investment banking divisions) helped to provide a reason for optimism. It is too early to draw any real conclusions, but with estimates so low it will be tough for companies to really miss forecasts. Wells Fargo however managed to provide plenty of bad news, increasing loan loss provisions and slashing its dividend, resulting in the stock renewing its impressive underperformance versus the S&P 500. Investment banks will have got by thanks to trading volumes, but for a domestically-focussed bank like Wells Fargo there is no such comfort.

The fact that yesterday’s losses for indices have been recouped so quickly (apart from the Nasdaq, which is paying a heavy price for its huge rally in the early days of July) points to a continuing dose of risk appetite among investors. The move back towards restrictions in some US states is regrettable, but necessary, and markets still prefer such moves to a wholesale reopening of the economy that brings with it the risk of a huge spike in cases. Monday’s pre-earnings season tantrum may be just that, a brief blip that saw recent strong performers like the Nasdaq hit hard, but the overall strength in equity markets left broadly unaffected.

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Chris Beauchamp

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