3Dollars: Earnings Season Review – Financials Star


Earnings Season Presents Positive Results, Strong Profits for Financials

This earnings season began with all eyes on the major banks, which expected gains from rate hikes. Financials avoided disappointment as other factors enter the market. Volatility is sinking in throughout world markets, a possible sign of complacency. Oil has rebounded from lows on new that U.S. stockpiles unexpectedly fell.

$1 Earnings season for the big banks started with JP Morgan ($JPM) posting earnings per share of $1.82 (estimate $1.59). The beat still translated to a drop in share price as the company reduced its forward outlook and trading revenues fell. Given historically low volatility, few profits are available for traders. CEO Jamie Dimon also lambasted the Washington malaise, voicing concern for progress and its hindrance to America writ large. The other major banks followed trend, posting earnings beats but suffering setbacks in trading. Financials became affordable.

$2 Low volatility is prevalent throughout the world’s markets. There is no lack of notable events (Trump/Russia, North Korean missiles, UK terror attacks) that affect markets during other business cycles, but not today. Low volatility usually suggests a low risk environment, but prolonged low volatility suggests a new risk: complacency. If investors are not properly hedging and reallocating, a black swan event can catch everyone flat-footed. It is a good idea for investors to protect against overexposure to sectors and general over-extension of portfolios.

$3 Oil futures rebounded from lows below $44/barrel. Much of the run up towards $47/barrel is linked to reports of dwindling U.S. petroleum stockpiles, a possible sign that the energy glut is coming to a close. OPEC’s efforts to cut world inventories to prop up prices have failed, much to the cartel’s chagrin. However, the U.S. and some African nations continue to pump oil and natural gas into energy markets at torrid paces. Relief is still fleeting for OPEC.

Have a great weekend!

-Joe

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