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Bank Earnings to Set the Tone for Stocks

Earnings from J.P. Morgan Chase and Wells Fargo could help set the course for stocks Friday, as markets head to the finish line of a volatile week.

New York Stock Exchange
Photo: Oliver Quillia for CNBC.co
New York Stock Exchange

Investors, however, will also be reacting to the overnight data from China and the follow-through from Google’s late Thursday earnings news.

Federal Reserveofficials, active every day this past week, will continue to be a factor Friday as Fed Chairman Ben Bernanke speaks at 1 p.m. on lessons learned from the financial crisis at a conference in New York. There are also a couple pieces of U.S. data, including CPI at 8:30 a.m. ET and consumer sentiment, at 9:55 a.m. ET.

Google late Thursday reported a profit of $10.08 per share, excluding stock-based compensation, compared to $8.08 a year earlier. The company also announced it was creating a new class of non-voting stock that would trade on the Nasdaq and be distributed to shareholders on a one-for-one basis. Google shares gained in the after-hours session.

J.P. Morgan is expected to earn $1.14 per share on $24.4 billion, while Wells Fargo is expected to earn $0.73 per share on revenues of $20.4 billion. (Read More: JPM, WFC the Banks to Beat)

“Those two are the only reasons people will turn on their computers tomorrow. There’s high expectations, but there’s a reason Wells Fargo moved their reporting date to match J.P. Morgan. They want to be the bellwether,” said Peter McCorry, a bank trader at Keefe Bruyette. Market participation has been relatively light this past week with many traders away for the Easter holiday.

The two big banks set the pace for the banking sector this quarter, and also, along with Google and Alcoa , help set the tonefor the start of the earnings period.

“Anyone who needs exposure to the financials has used these two as a proxy,” said McCorry.

Stocks staged a strong rally Thursday,with the Dow leaping by triple digits, as concerns about Europe faded into the background and optimism that Chinese data early Friday would show the country is not headed for a hard landing.

Economists also raised U.S. GDPnumbers for the first quarter after a surprise narrowing of the trade deficit to $46 billion in February. Barclays raised its first quarter GDP tracking to 2.7 percent.

The Dow was up 181 to 12,986, a 1.4 percent gain, and the S&P 500 soared 1.4 percent, or 18 points to 1387.

“I really think you’ve got to watch the European bond market. The really nasty stuff was when the Spanish and Italian debt moved up toward 6 percent (yields)… Now that those bond yields are back down, everybody’s buying stock again,” said Steve Massocca of Wedbush Securities. “I think they’re (stocks) down a little bit on the month because of the unemployment number, but all of the Europe stuff (concerns) is out of it now.”

Talk about China dominated markets Thursday, as speculation circulated its first quarter GDP, due overnight, would be higher than expected at 9 percent. That helped fuel a risk rally, in stocks, currencies and commodities. The dollar fell against the euroand commodities-based currencies.

There has also been ongoing speculation that China will carry out more policy moves in order to keep its economy on track. China was expected to report GDP, industrial production and retail sales Friday.

“I tend to be suspicious of Chinese economic data rumors,” said Marc Chandler, head of foreign-exchange strategy at Brown Brothers Harriman. He said the reason it has an impact is because people believe China was close to further easing policy.

China’s Shanghai indexrose 1.8 percent Thursday. Bank lending in China was reported overnight to have surged to the highest amount since January 2011. There was also stronger-than-expected growth in money supply, which rose 13.4 percent in March from a year ago.

Fed Ahead

Fed officials speaking this week came from both the hawkish and dovish camps. New York Fed President William Dudley spoke Thursday morning, defending why the Fed will keep rateslowthrough 2014. Minneapolis Fed President Narayana Kocherlakota on Thursday repeated his call that the Fed start reversing its loose stance sometime in the next six to nine months.

Deutsche Bank chief U.S. economist Joseph LaVorgna said, after listening to the mixed messages, he is now convinced the Fed will not take further action on “Operation Twist.” Twist is set to expire in June and involves the Fed purchasing long-dated securities as it sells the same amount of short dated securities.

Traders have speculated the Fed could extend that program, if it doesn’t choose to carry out another round of quantitative easing , or direct asset purchases, in June.

“This past week validated the perception that the Fed is unlikely to pursue any further measures because the economy does not look that bad,” said LaVorgna. He said in particular he was convinced by comments from Fed Vice Chair Janet Yellen. Though a dove, Yellen said Wednesday she did not see a reason for further easingat the moment.

Follow Patti Domm on Twitter: @pattidommQuestions? Comments? Email us at marketinsider@cnbc.com

  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • CNBC Senior Commodities Correspondent and Personal Finance Correspondent

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.