Q. Dear Josh, JP Morgan’s earnings were very good, what will this mean for the other banks?
A. I take a balanced view on this. That JP Morgan announced much better earnings than the market had first anticipated, a 57 per cent rise in profits, is a good sign for the bank and when you break down the performance itself, it could also have positive connotations for other banks that have similar divisions. Its fixed income department contributed $5.5bn to revenues, up 12 per cent from a year ago, and both Goldman Sachs and Morgan Stanley have large fixed income divisions. Investors were no doubt also excited to hear Jamie Dimon, JP Morgan’s CEO, say that “I think you’re going to see other people report similarly good numbers…”
However, I would be somebody to err on the side of caution when it comes to banking stocks. As soon as JP Morgan’s numbers were announced, both Goldman Sachs’ and Morgan Stanley’s share prices opened much higher, in line with a number of other banks in both the US and Europe. There could be an issue of heightened expectations. If the numbers aren’t so great, then investors could quickly conclude that these banks are falling behind and their share prices could turn volatile. That said, investors might be influenced by the SEC charging Goldman Sachs with fraud on Friday, which triggering share price falls of 14 per cent. This may well divert investors’ minds away from the earnings report. We will see when Goldman reports this Tuesday, and Morgan Stanley on Wednesday.
Q. Dear Josh, what are the key earnings from companies this week?
A. We are getting right into the thick of the first quarter earnings season now and this week we have some really key companies reporting. Citigroup is set to announce at noon today, which is likely to be a big market focus along with IBM. Tomorrow’s headline will be Goldman Sachs, as mentioned above. Later this week we also have plenty of big companies, such as Coca Cola, Yahoo, Apple, eBay, Morgan Stanley, Amazon, American Express and Microsoft all demanding a large market focus.