It could be a tough earnings season for US markets if the market’s performance for Tuesday is any guide.
Not even strong quarterly results from two major banks – JPMorgan and Goldman Sachs – could keep Wall Street aloft at the end of what turned out to be a rough session.
The rises in quarterly profit were eye-wateringly high as forecasts had suggested, but buried in the detail were warning signs about the sustainability of key sectors of banking activities – such as consumer and business lending (not for takeovers and the like).
The results hit as markets were digesting the larger than forecast rise in the US Consumer Price Inflation reading for June (see separate story) and a weak bond auction which saw 10-year yields jump to 1.41%.
As a result, the S&P 500 and Nasdaq ended lower on Tuesday after hitting record highs earlier in the session.
ASX traders ignored that lead and left the overnight Share Price Index futures up 4 points for the opening later Wednesday.
Iron ore was mixed, gold and oil were a touch stronger and copper was easier.
The S&P 500 and Nasdaq reached fresh record highs but quickly fell into negative territory after an auction of 30-year Treasuries showed less demand than some investors expected and pushed yields higher.
The Dow dropped 0.31% to end at 34,888.79 points, while the S&P 500 lost 0.35% to 4,369.21. The Nasdaq eased 0.38% to 14,677.65.
Shares in JPMorgan Chase & Co stock fell 1.5% after the company reported blockbuster quarterly profit jumped 155% to $US11.9 billion but warned that this upbeat outlook would not make for blockbuster revenues in the short term due to low interest rates.
JPMorgan released $US3 billion in loan loss reserves (built up in early 2020) after taking just $US734 million in charge-offs.
That gave the bank a $US2.3 billion benefit and allowed it to top earnings expectations.
That saw investors give less credit to JPMorgan’s quarterly outperformance. A loan loss reserves release was always on the cards in the quarterly figures, just not the size.
Goldman Sachs Group shares dipped 1.2% after its quarterly earnings topped forecasts but there was weakness in second quarter trading revenues.
Goldman Sachs’ investment banking posted its second-highest revenue quarter ever, behind the first quarter of 2021 but the bank’s trading businesses saw a slowdown in the last quarter with net revenues of $US4.90 billion, compared with $US7.58 billion in the first quarter of 2021.
Trading is a core business for Goldman Sachs and investors took the fall as a warning of tougher times to come. But the bank said it was looking to a substantial rise in revenue in profits from mergers and acquisitions and investments in coming quarters.
Second quarter revenues jumped to $US15.39 billion and net earnings rose to $US5.49 billion.
Net revenues were $US33.09 billion and net earnings were $US12.32 billion for the first half of 2021.
Major banks, Citigroup, Wells Fargo & Co and Bank of America were due to report their quarterly results tonight, Sydney time (before Wall Street opens).
In contrast to the performance of the big two banks, shares in PepsiCo rose 2.3% after raising its full-year earnings forecast.
Shares Boeing fell about 4.2%, after the plane maker revealed cuts to its Dreamliner 787 production schedule following the detection of a new manufacturing flaw by regulators which ordered the company to fix it.
And Conagra Brands underlined the impact of rising costs as its shares slid 5.4% after the packaged foods giant warned that higher raw material and ingredient costs would take a bigger bite out of its profit this year than previously estimated.
