Pisani: What Is Wall Street Focusing On?

On the eve of earnings season, the Street is focusing on two sectors. Transports and big banks are two of the biggest gainers year to date, up 10 percent and 30 percent, respectively.

And that's the problem; we are expecting VERY positive comments from both sectors in the coming days. Transports are likely to live up to most of the hype, but financials likely will not.

The Street has been long both sectors for months.

We are weighting for CSX to come out with earnings after the bell. Deutsche Bank sounded the bullish note this morning: "Volumes are up nicely y/y off easy comparisons and pricing has been improving YTD. Truck, railroad, and airfreight companies saw volumes build sequentially m/m in Q1 due to inventory rebuilds and better sales."

Early signs are indeed encouraging. Yesterday two regional rail carriers that specialize in hauling freight reported notable increases in March carload shipments:

1) Genesee & Wyoming reported a 6.9% year-over-year increase in March carloads, its first month there's been an increase in a year. It grew largely to increased steel shipments in its New York/Ohio/Pennsylvania lines.

2) RailAmerica reported an 8.7 percent year-over-year rise in freight carloads last month. Much of the increase came from higher shipments of metals (up 128 percent(!)), chemicals (up 24 percent), and agricultural products (up 19 percent). However, slightly offsetting those gains were lower shipments of coal (down 6 percent) and minerals (down 3 percent).

But all these smaller names have also had nice runups. Today influential transport analyst Ed Wolfe reduced his ratings on three companies due to price appreciation: logistics supplier Hub Group, and truckers Arkansas Best and ConWay.

What about banks? Again, big price runups on hopes of positive comments on stabilizing chargeoffs and declining provisions for loan losses. But here's what one trader in financial stocks said to me this morning: "Over the last two days, Ahead of JPMorgan earnings, we've seen investors buying puts in multiple banks spread through multiple months...Over the last 4 earnings cycles the banks have rallied into earns only to selloff after earn announcements begin."

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