Can bank earnings push the Dow to new highs?

Pre-earnings season valuation jitters were swiftly undone in the last two sessions that saw positive earnings from Wells Fargo and Citigroup. Bank earnings are likely to dominate today’s proceedings with results from Goldman Sachs and JP Morgan as well as Johnson & Johnson. US markets look set to open higher ahead of corporate earnings, retail sales data and the first day of congressional testimony from Fed Chair Janet Yellen. Futures suggest the Dow Jones will open 4 points lower at 17,051 with the S&P500 expected to open 1.5 point lower at 1,975.5 and the Nasdaq 1 point lower at 3,928. Big money centre bank stocks have largely underperformed the S&P 500 as well the financial sector in the US this year. Banks were sold off alongside technology stocks on valuations fears in the first few months of 2014 but haven’t bounced back the way tech stocks have. It is a symptom of the current stage in the market cycle that investors tend to switch out of cyclical stocks including banks and into energy and basic industry sectors towards the end of the bull market. On this basis bank stocks seem set to continue to underperform. Fixed income, currency and commodity (FICC) trading revenues will be in focus again given the drop off seen last quarter, volumes have remained low and Goldman has even put its metals warehouse business up for sale so it seems likely this will continue to be an area of difficulty. Investment banking really should be a more positive story for Goldman and JP Morgan given the recent surge in IPO’s and M&A. Goldman Sachs is expected to earn $3.05 per share down 65c from this time last year on revenue of $7.97bn down from $8.61bn. The firm was recently fined $800k for mispriced trades in its dark pool so investors will also be looking for more information on any other regulatory issues. JP Morgan is expected to earn $1.29 per share down 16c from a year ago on revenue of $23.7bn down $1.5bn. The firm was fined $13bn in 2013 for similar mortgage security selling that Citigroup was just fined $7bn for so the hope is that most regulatory issues are behind them. Johnson & Johnson is expected to earn $1.54 per share on revenue of $18.86bn up 4.1% and 5.5% respectively on a year ago. Retail sales are expected to have risen by 0.6% in June, an increase over the 0.3% gain seen in May. Intel and Yahoo! Report after the closing bell. CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.