Wall Street Focuses This Week on Financial Earnings
U.S. stocks shrugged off the chaotic coup attempt in Turkey over the weekend, instead focusing on the financials sector. Bank of America (BAC) - Get Report reported better-than-expected second-quarter earnings Monday.
Profit of 36 cents a share topped estimates of 33 cents. Revenue fell 7.1% year over year to $20.4 billion, in line with estimates. "Bank of America is perhaps the most sensitive to low interest rates," said Michael Ingram, a market analyst with BGC Partners, based in London, adding that the revenue line for the banking sector is under intense pressure amid a slower pace of Federal Reserve rate hikes.
"We came into this year with the Fed saying we would probably raise rates four times. Now it's down to two and the market thinks it's not even going to be one," he said. Lower rates ding a bank's net interest margin.
"This forces them to to look at the cost line yet again," he said. "As [CEO] Brian Moynihan indicated today, that's going to come under increasing scrutiny so if you're there with a desk, watch your back because the ax might come looking for you."
Goldman Sachs (GS) - Get Report is out with earnings on Tuesday and Morgan Stanley (MS) - Get Report released financial results Wednesday.
Meanwhile, the Dow Jones Industrial Average closed at a record high last Friday and was on track to build on those gains Monday. Ingram remains bullish on U.S. equities. "I think we have some very profound questions in Europe," he said, referring to geopolitical issues like the Turkish coup attempt, last week's terror attack in Nice and the looming fallout from the June 23 Brexit vote.
With stocks reaching new record highs in the U.S., Ingram said valuations are a critical issue and he'll be looking to second-quarter earnings season to make him feel comfortable that there's still more room to run in equities.