Worries about smart phone and chip demand hit stocks hard today–and a rise in commodity prices, while good for commodity producers raised fears of higher inflation. As of 3 p.m. New York time, the Standard & Poor’s 500 stock index was off 0.79% and the Dow Jones Industrial Average was lower by 0.43%.
By and large the big banks reporting first quarter earnings today modestly beat Wall Street earnings expectations. And after some initial moves higher, all the stocks have sold off strongly as of noon New York time.
But it’s a Friday–which in these high volatility times usually means selling before the weekend. And the beats are modest so it’s possible that some investors are actually disappointed. All in all, not the tell for how traders and investors will react during the rest of earnings season that I was hoping for yesterday.
Financial stocks led the Standard & Poor’s 500 higher on Thursday as the Financial Sector Sector SPDR ETF (XLF) gained 1.75% to beat the 0.83% rise in the S&P 500. Sure felt to me like the sector was anticipating the earnings reports from the big banks due on Friday morning before the market open. Earnings from the financial sector open first quarter earnings season.
What was the difference between the slight slide in the Standard & Poor’s 500 stock index on Thursday–a drop of just 7.25 points or 0.27%–and the debacle on Friday when the S&P 500 fell 2.12% or 59.85 points to 2762.13? The financial sector. On Thursday the financials supported the entire market with the Financial Sector Select SPDR ETF (XLF) climbing 0.94% even as the S&P 500 was headed lower. On Friday, financials fell even harder than the overall market with the XLF ETF dropping 2.20%.
Certainly no one cheered this morning when Bank of America and Goldman Sachs announced big one-time hits from the recently passed tax bill, but as with JP Morgan Chase and Wells Fargo last week, the big deal for investors was what these huge financial institutions had to say about future quarters. And on that Bank of America and Goldman Sachs delivered differing degrees of optimism
Back in October 2017 I set up a very simple portfolio of 5 ETFs with the goal of beating the performance of a Standard & Poor’s 500 ETF (so that’s the benchmark) with less risk (because of the added diversification.) I said that I would rebalance this portfolio as needed–or on a six month schedule (which ever came first.) But that this would be a relatively passive portfolio of passive ETFs–but with some active management thrown in by way of those shifting allocations. Well, the portfolio certainly isn’t six months old, but we have flipped the calendar page into 2018 so I’m going to do the first performance report now and at the same time do an initial rebalancing of assets.
Another week dominated by bank earnings reports will give traders and investors time to get really excited about the shift to earnings reports from other sectors in the week that begins on January 22. The big fourth quarter earnings reports for this coming week are Citigroup (C) on Tuesday (remember the market is closed on Monday for Martin Luther King’s birthday), Bank of America (BAC) and Goldman Sachs (GS) on Wednesday, and then finally some non-financial stocks on Thursday and Friday with IBM (IBM) and Schlumberger (SLB).
Going into earnings this morning from JPMorgan Chase (JPM) and Wells Fargo (WFC) what I wanted was an indication as to whether or not the stock market would care about the billions in one-time write offs that these banks would report for the fourth quarter due to the recently passed tax bill. That’s important because this one-time charge will show up on the earnings reports of other banks, of technology companies, and of big drug makers. On the early evidence today, the market doesn’t and won’t care.
We are likely to see a test of this rally as we begin earnings season. The first earnings reports that might move the market come at the end of the week on Friday, January 12. But you can expect some nervous anticipation as we move toward Friday. That’s because the first potentially market-moving reports come this quarter, as has been the case for a while now, from the financial sector.
I’m not sure I can put together the disparate action of gold, financials, and bonds today. The combination of directions certainly isn’t the conventional one.
In my daily trawling through the market I come upon lots of tidbits of knowledge that I think are important to investors but that don’t justify a full post. I’ve decided to start compiling these notes here each day in a kind of running mini blog that I’m calling Notes You Need. Post includes items like this from today: “Investment bank Cowen & Co. estimates that Amazon (AMZN), Alphabet (GOOG) and Facebook (FB) will save a combined $4.5 billion on taxes in 2018 thanks to the Republican tax bill. The tech giants, Cowen also notes, should in addition benefit from the bill’s capex expensing provision. The investment bank sees big earnings per share gains for the companies with Amazon showing an expected earnings upside of 24%, and Alphabet and Facebook seeing 8% earnings increases.”
