Unlike Tuesday when earnings reports were on the reassuring side, the tone of this morning’s releases is on the negative side. And it’s not just this morning's Bank of America (BAC) miss, the overnight reports from Yahoo (YHOO) and Intel (INTC) and some of this morning’s other releases are also on the weak side. With the economic calendar on the thin side today, this underwhelming earnings picture serves as the dominant backdrop for today’s trading action.
Bank of America is the last of the four universal banks to come out with first quarter results and they seem to be the weakest of them all. They didn’t get as much benefit from the mortgage refinancing boom over the last few quarters as Wells Fargo (WFC) did and their capital markets franchise is on the weaker side relative to J.P. Morgan (JPM). The environment for the traditional bank lending business has not been that favorable for a while due to the Fed’s low interest rate policy. The interest rate headwind is not restricted to Bank of America alone, but it nevertheless highlights the lack of any prominent earnings drivers for this bank.
We still have plenty of Finance sector results to come, but these four mega banks carry an outsized sway in the sector. The 15 Finance sector companies in the S&P 500 that have reported Q1 results thus far, including this morning’s Bank of America report, account for 40.9% of the sector’s total market capitalization. What this means is that the trend that we have seen thus far will likely carry through for other industry players as well. At this stage, Finance sector earnings are up +9% from the same period last year on +3.6% gain in revenues. This is a weaker growth pace than what these same 15 companies reported in 2012 Q4. The composite earnings growth picture for the sector, combining the results that have come out with those still to come, is for earnings growth of +2.8% in Q1. This would compare to the +10.3% earnings growth for the sector in Q4.
The Earnings scorecard as of this morning shows Q1 reports from 56 S&P 500 companies or 11.2% of the index’s total membership that account for 16.1% of the index’s total market cap. Total earnings for these 56 companies are up +3.4% from the same period last year, with 64.3% beating earnings expectations. Revenues are up 2.4%, with only 35.9% of the companies coming ahead of top-line expectations. This is weaker performance than what this same group of 56 companies reported in the fourth quarter. The composite growth rate for the first quarter, where we combine the results of the 56 companies that are out with the 444 still to come, is for a drop of -1.6% in total earnings on -0.6% drop in revenues.
Crude Inventories are scheduled to be released today at 10:30 AM EST. For the week ending April 5, crude inventories increased by 0.3 million barrels from the previous week to 388.9 million barrels.
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