One week in, here’s what we’ve learned from earnings season

Earnings are shaping up to be better than people expected. Or at least, they’re not as bad as feared.

Big banks struggled in bond trading in the fourth quarter but posted strong results in consumer businesses and solid credit quality, an indicator that American households are doing well. Few companies reported seeing collateral damage related to tariffs, though Apple said earlier this month it was seeing signs of weakness in sales in China.

So far in fourth quarter reporting season, with 11 percent of the results reported for the S&P 500, three-quarters of companies have actually surprised Wall Street’s forecasters with better than expected profit and a little more than half have reported better than expected revenue. Companies in communications services, consumer discretionary and health care have had the best showing, according to FactSet.


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The solid showing is lifting stocks that were already retracing ground lost late last year. The S&P 500 ended the week up 2.9 percent and is up 6.5 percent for the year so far.

Up next week, profit reports from Johnson & Johnson, IBM, Procter & Gamble, American Airlines, Starbucks, Intel and others.

The big banks were the first major group of companies to report this week and their results were a mixed bag.

J. P. Morgan Chase and Morgan Stanley both posted weaker-than-expected quarterly profits this week. In fact, it was J.P. Morgan’s first time missing expectations in 15 quarters. Citigroup rolled out stronger-than-forecast earnings as the company’s cost-cutting efforts offset weak performance in some of its businesses. Wells Fargo‘s earnings beat estimates, but its revenue missed amid declines in its three key businesses.

Bank of America and Goldman Sachs were the big winners of the banking earnings season. Both companies reported stronger-than-expected results across the board, sending their stocks shooting higher.

CNBC’s Jim Cramer called Bank of America a growth stock, and the “Amazon” of banking.

Overall, profit growth isn’t expected to match last year’s brisk pace, but it is still expected to be double-digit. The average growth for S&P 500 companies is now seen as 10.6 percent, according to FactSet. If that comes to pass, it will be the fifth straight quarter of double-digit growth.

Ten of the S&P’s 11 sectors are reporting or expected to report growth, and six of the sectors are expected to report profit growth in the double-digit range, led by energy, industrials and communications services.

Analysts have been cutting their forecasts for growth this year, something that injected some doubt into the markets and pushed stocks lower late last year. But a 2019 rally has regained a lot of that ground as fears about a recession later this year fade and worries about trade tensions and Fed interest rate hikes dissipate.


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