Another morning and another big bank with a blowout earnings report. But the overall market doesn’t seem to be getting much of a
boost from the news.
This time the bank is Morgan Stanley (NYSE: MS), which reported a sharp jump in trading revenue, following in the path of other
banks reporting so far. While MS took center stage first thing, it looks to be a busy day in the markets, with a string of earnings
reports, the Fed’s Beige Book release, and Fed speakers on the prowl. Stocks were just a little above unchanged early.
Each of the major banks reporting so far this earnings season came in with big leaps in trading revenue, and MS was no
exception. Bond trading at MS rose 61%, and it appears the business got a lift from demand centered around a possible Fed rate hike
and concerns about the effects of Brexit. Overall, MS reported earnings of 81 cents a share, easily surpassing Wall Street analyst
consensus of 63 cents. Revenue climbed 15% to $8.91 billion, compared with projections of $8.13 billion.
Financials continue to do well, and that includes regional banks, too, with U.S. Bancorp (NYSE: USB) also reporting earnings that exceeded expectations early Wednesday.
Fixed income trading is adding to banks’ bottom lines after many years of struggle, and that may be a good sign not just for big
banks but for market participants overall.
After the close Wednesday, stay on the lookout for more earnings from some key companies, (see below). About 20% of S&P 500
companies report this week, so this week and next really represent the true heart of earnings season.
Investors may want to look beyond earnings today to monitor what Fed officials have to say. San Francisco Fed President John
Williams is scheduled to speak about diversity in the financial system in Newark, N.J., at 8:45 a.m. ET, while Dallas Fed President
Rob Kaplan will make a speech in Fort Worth, Texas, at 1:30 p.m. On Wednesday evening, New York Fed President William Dudley will
speak in New York. Odds of a December rate hike remained at close to 70% early Wednesday, according to Fed funds futures at the CME
Group. And don’t forget to keep an eye out for overseas central bank news Thursday, when the European Central Bank (ECB) holds a
meeting to discuss its monetary policy program.
The Fed is scheduled to release its Beige Book at 2 p.m. ET today, offering a look at how U.S. regional economies are
performing. The thing to look for there is whether we’re seeing a consistent message in terms of business conditions improving.
Crude oil futures stayed above $50 a barrel after the American Petroleum Institute (API) reported a 3.8 million barrel decline
in U.S. crude supplies for the week ended Oct. 14. That was in contrast to analysts’ estimates for a rise of 2.5 million barrels,
MarketWatch reported, and may reinforce concerns expressed by some analysts earlier this week that supplies aren’t rising as
quickly as normal heading into the last months of the year. Nevertheless, crude didn’t seem to be giving the stock market much of a
boost, despite the correlation being back between crude and the S&P 500 Index (SPX). The Energy Information Administration’s
(EIA) weekly supply data is scheduled for later today.
In the energy sector, Halliburton Company (NYSE: HAL) reported better than expected earnings, which could mean that stronger crude oil
prices may improve prospects for energy companies overall, something to watch as earnings season continues.
Health Care In Recovery Room: The embattled health care sector, the weakest-performing sector year to date with a
3.6% loss, was back on its feet Tuesday, jumping more than 1% to lead all sectors thanks in part to earnings results from some big
names. Among these were UnitedHealth Group Inc (NYSE: UNH) and Johnson & Johnson (NYSE: JNJ). Both exceeded analysts’ expectations, and UNH got a particular boost from the
strong performance of its health benefits business. JNJ reported strong sales of its pharmaceutical products and raised guidance.
Other than these two, and Abbott Laboratories (NYSE: ABT), which reports Wednesday, this week seems relatively quiet from the health care
earnings standpoint. Investors with their eyes on health care may want to stay tuned for next week, with earnings from
Baxter International Inc (NYSE: BAX) and
Merck & Co., Inc. (NYSE: MRK) scheduled for
Tuesday. Health care has been under pressure lately, in part due to the coming presidential election. Concerns are building about
how each candidate might change health policy if they win. Biotech has been especially hard hit the last few weeks.
Earnings to Watch Wednesday and Later This Week: This afternoon, stay on the lookout for earnings from some
consumer names, including eBay Inc (NASDAQ: EBAY), Mattel, Inc. (NASDAQ: MAT), and American Express Company (NYSE: AXP). The early earnings news has been dominated by financials, but now we may start
getting a look at how consumers did during the quarter. One of the bigger companies catering directly to consumers is
McDonald’s Corporation (NYSE: MCD), and that
behemoth reports before the open Friday. Another key company with earnings on the way later this week is General Electric
Company (NYSE: GE), also on Friday morning. Analysts
polled by Briefing.com now expect MCD to exceed its year ago earnings per share, with the consensus estimate at $1.48, vs. $1.40 a
year ago. But analysts see GE’s earnings per share dropping to 30 cents, down from 32 cents a year ago.
Inflation Stays Muted; What are Rate Implications? Though it was almost lost amid all the earnings reports this
week, the Consumer Price Index (CPI) for September came out Tuesday basically as analysts had expected, showing 0.3% growth overall
but only 0.1% for core CPI excluding energy and food. Seeing the total figure go up 0.3% is no surprise, because energy prices rose
last month. Looking at the core figure, it’s on the positive side of the ledger, which is good from the Fed’s perspective, but
perhaps still not as high as the Fed might like. And the core reading was actually down from August’s 0.3%. The Fed has said its
target is for 2% annual inflation growth, though it also monitors inflation indicators other than CPI. The overall CPI was up 1.5%
year over year in September, the biggest year-over-year jump in nearly two years. And core CPI rose 2.2% year-over-year. What do
these inflation figures mean when it comes to interest rates? It might be interesting to see if today’s Fed speakers have anything
to say on the topic.
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