Wall Street Moving Upwards Despite Bank Earnings News
The major U.S. stock indexes are all moving gradually upwards today, with the S&P 500 index gaining 0.10%.
Thursday, April 14, 2016 - 00:00
Although breadth on the NYSE does not favor either advancing stocks or declining stocks, both small caps and large caps are rallying. Among individual stocks, the top percentage gainers in the S&P 500 are American Airlines Group Inc. and Vertex Pharmaceuticals Inc. The rally in global equities that has finally erased the worst start to a year also continued Thursday on renewed speculation improvement in China’s economy is sustainable even as profits American companies disappoints.
In earnings news, both Bank of America and Wells Fargo said their first-quarter profits fell as the banks faced slumping oil prices, low interest rates and choppy financial markets. The results come a day after JPMorgan (JPM.N) beat tempered expectations for first-quarter profit and revenue, fueling a rally on Wall Street. Bank of America said earnings declined 13% from the quarter a year ago, to $2.7 billion, or 21 cents a share, dragged down by lower long-term interest rates and a slump in its sales and trading business. That compares with earnings of $3.1 billion, or 25 cents a share, in the same period a year ago. Analysts had been expected profits of 20 cents a share, according to Thomson Reuters.
Wells Fargo’s profits also fell as it set aside more money to cover its struggling portfolio of oil and gas loans. Still, it earned more money than analysts expected. The stock fell 0.2%. Shares of PNC Financial Services Group fell 1.7% after the bank’s profit and revenue missed estimate. The first quarter of the year is typically the strongest for Wall Street as clients seek to redeploy their capital, but banks were hard hit by a bad environment for trading and deal-making. Despite the less than stellar news, bank stocks are up today. Why? In an era of stubbornly low interest rates and slumping profits from Wall Street trading, banks are turning to expenses as the only lever to pull with revenues declining. It’s one they used last year, when the five biggest U.S. banks made the most profit collectively since before the financial crisis by eliminating more than 20,000 jobs and paring expenses 13%.
Data release today showed U.S. consumer prices barely rose in March, while jobless claims fell more than expected and sank to levels last seen in 1973. The data could add to speculation about when the Fed will pull the trigger on interest rates, with the market pricing in only one hike this year and the central bank projecting two.
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