Stocks will likely take a pause today after making another all-time high the day before in response to soft economic data and less than impressive earnings results from J.P. Morgan (JPM) and Wells Fargo (WFC). Investors have been shrugging all evidence of economic weakness in the hope that it guaranteed continued Fed support, but it nevertheless raises doubts about the rally’s staying power.
The Retail Sales numbers came in weaker than expected, both on the ‘headline’ as well as the ex-gasoline and ex-automobile components. The expectation was for March Retails Sales growth to be in the negative territory after the strong gain in February, but the growth rate turned out be even weaker than that. This data adds to evidence from other sources that is pointing towards renewed weakness in the economy after the strong momentum in January and February. Last week’s two ISM surveys and the March non-farm payroll report all pointed towards an economy that was losing steam.
The J.P. Morgan and Wells Fargo results are by no means bad – the former beat strongly on EPS and modestly on revenue, while the latter missed on revenue but came ahead on earnings. But these are not just any other big banks – these two represent the best of the lot. And in that context, the quality of the ‘beats’ were somewhat underwhelming. Reserve releases played a big role in the beats, which takes some of the sheen off their positive surprises. That said, investment banking was quite strong at JP Morgan, while mortgage banking at both firm appear to be losing some of its momentum. This will likely be the recurring theme as bank earnings season ramps up next week.
Overall, total earnings from the Finance sector are expected to be down from the same period last year due to tough comparisons. Total earnings for the 31 companies in the S&P 500 that have already reported Q1 results as of this morning are up +13.8% from the same period last year, a lower earnings growth pace than what these same companies achieved in Q4 (+17.1%). These growth rates will come down in the coming down as the Q1 earnings season heats up as total earnings for the S&P 500 as a whole are expected to be down -2.2% in Q1 after the +2% gain in 2012 Q4.
Business Inventories are scheduled for release today at 10:00 AM EST and are expected to increase by 0.4% after increasing by 1.0% in January.
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