Market Insider

Stock market will try to get back down to business Friday with great earnings eclipsing Syria, trade worries

Key Points
  • Major banks, including J.P. Morgan Chase, kick off the first-quarter earnings season Friday, and that could be a catalyst for a next leg up for stocks.
  • April is seasonally strong for stocks and banks in particular, says one strategist.
  • Technicians say the market appears to have successfully retested the February low.
  • Earnings are expected to be up 18.5 percent and will help counter negatives for the market, though stocks remain vulnerable to events like a military response in Syria and trade wars.
It's judgement day for the rally with the big banks on deck for earnings

A trio of major bank earnings Friday could be the kickoff to a new catalyst for stocks: earnings season.

Analysts expect earnings to be up about 18.5 percent this quarter, a whopping gain and a plus for a market that's been volatile and focused on a host of negatives.

Strategists have been counting on super-strong earnings to refocus investors on fundamentals and away from worries such as trade wars and concerns about Syria. They caution that risks remain, though, and the market is vulnerable to any number of foreseen and unforeseen events.

Earnings from the major banks — J.P. Morgan Chase, Citigroup and Wells Fargo — officially mark the start of the first-quarter earnings reporting period, ahead of Friday's opening bell. PNC Financial and First Republic Bank also report.

JPMorgan Chase chairman and CEO Jamie Dimon.
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The S&P financial sector is expected to see earnings grow by 24.5 percent, but revenue growth should be just about 3.2 percent, according to Thomson Reuters.

Strategists are especially focused on J.P. Morgan Chase, which is expected to see earnings per share gain by 38 percent on revenue growth of 8.2 percent.

Chris Verrone, head of technical strategy at Strategas, said J.P. Morgan stock has been regaining its market leadership. "That's an important bellwether. ... April seasonality is pretty favorable, especially for banks. I would be hard-pressed to want to fight them," he said.

J.P. Morgan is up 4.3 percent so far this week, while the S&P 500 was up about 2.4 percent in afternoon trading.

"We think we're in the process of putting in a pretty good low. We have finally seen a change in sentiment," Verrone said. He said there are positives in that small-caps are emerging as leaders and there hasn't been high-volume selling pressure in recent sessions.

However, he notes that in years when there are midterm elections, the market usually does better later in the year, so it could chop around for a while.

Verrone said it's notable that Treasury yields have held up even during the market sell-off. "Bond yields haven't gone down that much. We've been impressed by the resiliency out of the bond market, and we've been impressed by the resiliency of some of these bellwethers," he said.

Earnings season starts in a big way next week, with dozens of S&P 500 companies, including Goldman Sachs, Johnson and Johnson, IBM, American Express and Procter and Gamble.

Jeffrey Saut, chief investment strategist at Raymond James, said he believes the market has successfully retested its bottom at 2,532 on the S&P 500 and he has been a buyer.

"I think the bottoming process was textbook. You got a failed throwback rally, you came back down and made an undercut low," he said.

Now, earnings should boost stocks, and the outlook for banks is favorable. "I think it takes the market higher. Higher interest rates are bullish for financials," he said, adding banks are in a favorable environment of deregulation as well.

Most sectors should see strong earnings gains. "I think everything is going to skate on the upside except for staples and utilities," said Saut.

Stocks surged Thursday, and bond yields rose, with the 10-year at 2.82 percent. "It was a day of feeling risks are receding," said John Briggs, head of strategy at NatWest Markets.

Citigroup is expected to see earnings per share grow 19.5 percent, and revenues up 4.5 percent, while Wells Fargo earnings per share are expected to rise more than 6 percent, but revenues are expected to see a decline of 1.2 percent, according to Thomson Reuters I/B/E/S.

BlackRock on Thursday was the first major financial firm out of the gate, and its stock was up nearly 2 percent after reporting a better-than-expected profit.

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