Volume is big in regional bank names as all are hitting new highs: can you say "short squeeze?"
Why? I've told you about the key trends, which all banks are now reporting: 1) improving credit trends and 2) net interest margin (the spread between borrowing short from depositors and lending long to borrowers) improved last quarter.
On top of that, several big regional banks like Comerica and Huntington Bancshares unexpectedly swung to a profit.
Here's the problem: no loan growth. Wells Fargo specifically mentioned that. This is a problem. You can't just have credit improving — if there's no loan growth, there's no future profits.
Think about it: everyone's loan book is rolling off, so you can make numbers by adding less or not at all to loan reserves. If you have less loans you reserve less. That's what banks are reporting right now.
Elsewhere, the key takeway from earnings season so far is: demand is picking up. Look at the reports today:
1) Techs: Seagate reports record shipments (up 32 percent)
2) Industrials: United Technologies says Otis Elevators orders up 9 percent
3) Manufacturing: Temple-Inland says corrugated packaging volumes are rising
4) Trucking: CH Robinson says shipping volumes are up 22 percent
5) Airlines: AirTran says they are "experiencing significant passenger demand"
So why aren't stocks up? Stocks are up! Stocks fluttered at the start of earnings season last July, October, and January, just like this period.
Still, what we will need to see now is job growth. Stocks have clearly anticipated the kind of news I mentioned above. We will now need more evidence that the economic recovery is expanding and going mainstream. We will need evidence of sustained jobs growth. The April jobs report is out May 7.
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