The earnings season kicked off today with announcements from two key financial institutions – JPMorgan Chase & Co. (JPM) and Wells Fargo & Company (WFC) – and the feedback could not be different.
JPMorgan's shares rose to the opening bell – opening at its highest level in 2019 – and continued to rise throughout the day, closing at $ 111.21. Shares of Wells Fargo, on the other hand, attempted to climb early in the session but slipped under key support at $ 47.50 to close the day at $ 46.49.
So what was the difference? Both companies exceeded their earnings guidance: JPMorgan exceeded the consensus estimate of $ 2.35 by $ 0.30 per share and Wells Fargo exceeded the consensus estimate of $ 1.10 per share. $ 0.10 per share. However, the gains are retrospective figures. While these numbers are important, investors tend to be more concerned about what the company will do in the future than what it has done in the past.
That's why the downside forecast of the Wells Fargo bank's CFO, John Shrewsberry, regarding the bank's net interest income was so disappointing. Investors expected the bank to forecast net interest income between a 2% contraction and a 2% growth for 2019. Instead, Shrewsberry said the bank was expecting a contraction between 2% and 5%. It appears that the yield curve has flattened and that rising deposit rates, pushed by banks competing to attract new customers, are primarily responsible for the anticipated contraction.
Investors reacted to this news of anticipated contraction by selling Wells Fargo shares. JPMorgan, on the other hand, has been successful in attracting new investors thanks to the strength of its consumer and consumer bank figures and a rebound in its earnings from investment banks. JPMorgan's skyrocketing purchases brought the stock down to the US $ 112 resistance level it had previously established in November and early December 2018, before the bear market retreated at the end of the year.
Even though Wells Fargo could not come up today, JPMorgan's strength is a good sign for the rest of the big banks in the financial sector who will release their results next week. If they show similar numbers, the S & P 500 could have a chance to break its record this season of results.
S & P 500
The S & P 500 set a new high for 2019 climbing to 2,910.54 early in the session, but it did not do much afterward, easing back slightly to a closing price of 2,907 41. The fact that the index has been resilient enough to continue to grow slowly is a positive sign that traders continue to cautiously add to the equity portion of their portfolios.
However, it was not all roses on Wall Street today. Anthem, Inc. (ANTM) dropped 8.48% and UnitedHealth Group Incorporated (UNH) lost 5.18% – a portion of its biggest two-day sale in 10 years – today as a result Bernie Sanders' announcement of his "Medicare for All" plan.
The stock of Netflix, Inc. (NFLX) also fell 4.49% after the announcement by Disney (DIS) of the launch of Disney +, its own streaming video service, to a price of only $ 6.99 per month. This could pose a huge threat to Netflix, which has consistently increased the price of its monthly service.
Risk Indicators – VIX
The CBOE Volatility Index (VIX) has confirmed the bullish sentiment that seems to permeate Wall Street these days as it closed at its lowest for the day: 12.0. This is an excellent sign that, even though investors remain cautious when adding to their bullish market positions, they are not doing so to secure their portfolios with protective put options on the S & P 500.
In general, investors buy more put options – the value of which increases when the underlying asset experiences price declines – on the S & P 500, when they fear the index will fall folds in the future. They hope that the increase in the value of the put options will partly offset any losses they may incur in their equity holdings.
This increase in demand for put options drives both price and implied volatility of put options. As a result, the VIX – an implied volatility index based on S & P 500 put and call options – is also growing.
Conversely, when investors are not worried about the decline of the S & P 500, they tend to buy fewer options on the index. This decline in demand generally lowers prices and levels of implied volatility in put options. As a result, the VIX also moves lower.
Seeing the VIX close to its lowest level since Oct. 3, 2018 is an encouraging sign for investors who think this could be a bullish season for the US stock market.
Bottom Line – Only the salvo of opening
Even though it may be tempting to think that the current prices on Wall Street guarantee us an excellent season of results, it is far too early to make that statement. The bullish earnings figures released today by JPMorgan and Wells Fargo are just the opening salvo of a process that has been going on for several months. Watch for more volatility ahead.
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