This week, the rubber hits the road as more big banks report and other industries also begin to enter the earnings picture. But
stocks looked likely to open lower Tuesday, hurt in part by Brexit concerns.
British Prime Minister Theresa May appeared to put the United Kingdom on path toward a sharp break from the European Union,
saying this morning, “What I am proposing cannot mean remaining in the single market,” The New York Times reported. Stock futures
tumbled after her remarks. The dollar came under pressure too, apparently hurt by President-elect Trump’s comments over the weekend
that the dollar was too strong. All this early excitement helped inject volatility into the market, with VIX rising 10% to
12.36.
On the earnings watch, Morgan Stanley (NYSE: MS) appeared to hit the ball out of the park, reporting an 83% jump in quarterly
earnings due in part to a year-end surge in trading revenue associated with the post-election rally. Bond trading revenue looked
especially strong. Quarterly profit increased to 81 cents a share, up from 39 cents in the same quarter a year earlier and above
Wall Street analysts’ consensus of 65 cents a share. Sales increased 17% to $9.02 billion.
That followed generally strong results last Friday from major financial names, particularly JPMorgan Chase &
Co. (NYSE: JPM) and
Bank of America Corp (NYSE: BAC). On a side note, MS announced cuts Friday in its investment banking units,
so it could be interesting to see how that plays out over the longer haul, as investment banking places high in the business models
of both MS and Goldman Sachs Group Inc (NYSE: GS).
Tomorrow brings two more financial behemoths in GS and Citigroup Inc (NYSE: C), and then most of the big financial names are out of the way
until next quarter. Once again, it may be wise for investors to look beyond the quarterly numbers and listen to what bank CEOs have
to say about the economic outlook. With a new presidential administration taking office, it may be more important than ever to get
a sense of what key executives think.
Another major report is from managed health care company UnitedHealth Group Inc (NYSE:
UNH), which released earnings before the open today and
beat Wall Street’s estimates on both top- and bottom-lines. Health sector investors may want to listen for signals from UNH about
the possible effects of the new administration and Congress, particularly what the company thinks of the possible repeal of the
Affordable Care Act (ACA). UNH executives may also pinpoint trends in general medical spending.
Wednesday morning brings the December consumer price index (CPI), after producer price index (PPI) data that came in pretty much
as expected last Friday. Analysts on Wall Street expect a 0.3% rise in overall CPI, but just a 0.2% increase in the core number,
according to Briefing.com. The November readings were 0.2% for both. There’s no major data on the calendar today.
Beyond Banks
The earnings season hit full stride last Friday when three big banks reported, and more major financial sector names are on the
calendar this week. But now we start seeing some other industries come into the picture, with Netflix,
Inc. (NASDAQ: NFLX) reporting
on Wednesday, International Business Machines Corp. (NYSE: IBM) on Thursday, and General Electric Company
(NYSE: GE) on Friday. NFLX is the first of the
so-called “FANG” stocks to report, and the other members of this fraternity are Amazon.com, Inc.
(NASDAQ: AMZN), Facebook
Inc (NASDAQ: FB) and
Alphabet Inc (NASDAQ: GOOG). Some of these big names came under pressure after the election, but
have shown more strength lately. NFLX says it’s now available in 190 countries, and grew its domestic subscribership in Q3. But
some analysts point to increasing competition. The company’s Q3 earnings report was better than expected, so we’ll see tomorrow how
NFLX follows that up.
Singing the Biotech Blues
The Nasdaq Biotechnology Index, which crumbled at one point last week after remarks on drug pricing from President-elect Trump,
managed to recover some losses by Friday. Still, there remains a lot of concern about how biotech might perform, as the industry
has been under fire from both parties during the last year. Market performance reflects those concerns, with the index up a little
more than 3% over the last three months, compared with a nearly 7% gain during that time period for the Nasdaq as a whole. Some of
the biggest biotech stocks are flat or lower since the election.
Consumer Sentiment In Line
Initial January consumer sentiment slipped a touch to 98.1, the University of Michigan said Friday, down from 98.2 in December
and a little under Wall Street analysts’ expectations. Still, sentiment remains at its highest level in more than a decade.
© 2017 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.