Of the 28 major reports released yesterday and today there were only two that missed expectations. Almost all the reports beat the average analysts expectations over the last two days. That includes JP Morgan Chase (JPM), Citigroup (C), and Bank of America (BAC), three financial bell-weathers. So if things are so good why are stock prices so bad?
The answer comes down to expectations of the future. Since the end of June traders have been building prices back up on the expectation that the earnings reports this season won't be as bad as many feared a few months ago. However, now that the news is here, they are selling into the data and putting much more emphasis on the bearish future outlooks being released by many management teams. The banking stocks I mentioned above have all released very cautious statements about their future profits. The CEO of Bank of America said today during a call to shareholders that...
"we’re worried about slowing momentum as the year-over-year comparisons get harder as the second half of the year was strong with the consumer. And again, we continue to watch the housing market carefully and it stays in our focus. As we look on the loan demand side, it continues to remain weak. On the commercial side, the commercial customers remain conservative by holding large amounts of cash while waiting signs of sustained demand for their products before they need capital growth. There’s no loan demand because there’s no demand for the products.”
These are not good comments about the future. Wall Street profits tend to drive investor profits in general so an outlook like this by the CEO of one of the largest Wall Street firms will have a strong dampening impact on investors. Considering the early reaction to this earnings season we are targeting support on the major stock indexes again.
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