Earnings this quarter will be the key move factor

Several Wall Street banks have released their second quarter earnings this week. After this week, the earning season is truly coming where we will see the impacts from past several economic events on the companies. However, the glimpse of this week showed a pretty complex view on the coming earnings.

JPMorgan (NYSE: JPM) is the biggest winner who benefited from the trading and advisory sectors due to Brexit. It reported a profit of $1.55 per share, compared to estimates of $1.43 and a revenue of $25.2 billion, compared to estimates of $24.3 billion. Wells Fargo and Citi Bank also released earnings on Friday. Citigroup’s second-quarter profit fell to $4 billion, from $4.85 billion a year ago. Earnings on a per-share basis of $1.24, beat the $1.10 expected by analysts polled by Thomson Reuters. Citigroup’s revenue, too, slightly beat expectations, at $17.55 billion compared with analyst estimates of $17.47 billion. Still, revenue was down 10% from a year ago. Wells Fargo reported a profit of $5.56 billion, or $1.01 a share. That compares with $5.72 billion, or $1.03 a share, in the same period of 2015. Analysts polled by Thomson Reuters had expected earnings of $1.01 a share. Revenue was $22.16 billion, also in line with analysts’ expectations.

However, meeting the expectations cannot convince the market. Prices of both Citi bank (NYSE: C) and Wells Fargo (NYSE: WFC) fell.

By taking a deep look of these earnings, problems still exist. Under this low interest rate condition, we should see an improving lending in both mortgage activities and business loans. Wells Fargo is famous for its diversified loan business which concentrates on the domestic area. The earning of second quarter meets the expectation but also showed a sluggish lending business. For JPMorgan and Citi bank, the better than estimate reports do credit to trading activities which is closely tied with Brexit. However, economic events like Brexit are not consistent. We should not rely on such uncertainties to help improve companies’ financials. Clearly, the economy is not as good as the stock market now which goes into a 2 year highest level.

Next week, we will see the earnings come one after another. I do believed even the earnings will be decent for the past quarter but the guidance for next quarter will not achieve investors expectations. Netflix is coming next Monday and other technology companies are behind this one. That will be the time to see the picture of US economy in the next 6 month of year 2016.   

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