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Stocks Cut Through Ugly Bank Profits: What Wall Street’s Saying

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Stocks kept rising Tuesday, as investors looked past worse-than-expected bank earnings reports. Investors are encouraged by ongoing improving trends with the Coronavirus, lockdowns and the expected rebound in economic growth and earnings. 

All three major U.S. indices rose Tuesday, with the S&P 500 rising 3%. The 10 year treasury yield was essentially flat, at 0.75%, as the Federal Reserve continues buying the bond. 

The average stock on the S&P 500 trades at almost 19 times 2020 earnings, a fairly rich multiple for the beginning of a recession, albeit a likely quick one. Many market participants and observers note investors are essentially trading stocks on 2021 earnings expectations, overlooking a rough 2020 battered by the Coronavirus. 

JPMorgan  (JPM) - Get JP Morgan Chase & Co. Report shares fell 2.29%, as the bank hit the market on revenue estimates, on the back of strong balance sheet growth as rates have fallen, but missed earnings per share estimate badly because of a 22% increase in its loan loss provision expense of $8 billion. 

Wells Fargo’s  (WFC) - Get Wells Fargo & Company Report loan loss provision expense hit $4 billion, increased roughly 5 times over last year’s. Net income fell 90%. The company missed revenue and earnings estimates badly. The stock fell 4%. 

The credit losses expected in the gaming system are an ominous signal for what’s to come, although investors, across sectors, are comfortable taking the near-term hit to fundamentals, as economies potentially re-open. 

Here’s the full breakdown from Wall Street on the day and on what to expect in the near-term: 

Marc Pfeffer, Chief Investment Officer, CLS Investments:

"As for why the market is up, markets are more forward looking. The data is going to be lousy for the next several months. There’s a lot more optimism that investors are now seeing over the last couple of weeks that the number of deaths are gong to be less, the number of viruses is a considerable amount less. I do not believe the economy will recover as fast as the market, and that’s why you’re seeing this rally. I would anticipate that we probably have a little bit more to go a [up] and then we’ll be much more range bound.” 

Mark Haefele, Chief Investment Officer, Global Wealth Management, UBS:

"Sentiment will zigzag until there is more clarity on formal measures to reopen major economies. Equity prices will likely stay volatile as a result. We think equity markets are currently pricing in close to our central scenario, that severe restrictions to limit the spread of the virus are lifted by mid-May in Europe and by early June in the US, but they are partially and intermittently reimposed later in the year. Economic activity starts to normalize as restrictions are lifted, but the recovery will be gradual, with economic activity and earnings in 2021 still shy of levels achieved in 2019. We think further upside for the broader equity markets would be better supported once we have more evidence that stimulus measures are working.” 

Ipek Ozkardeskaya, Senior Analyst, Swissquote Bank: 

"The divergence between the highest and the lowest analyst expectations are at record, confirming that financial experts have also lost their mark following an unprecedented halt in economic activity. But businesses with high exposure to global economy and China will likely suffer the most. The first quarter numbers will give a first indication on how bad the coronavirus outbreak hit company earnings; we stand ready for historic drop in results. In this respect, the US stocks, which have entered bull market last week, could well reverse their latest gains. Investors should watch out for two-sided price volatility."

Marc Odo, Portfolio Manager, Swan Global Investments:

“Bear market bounces are not uncommon. In fact, they are a feature of bear markets. Markets almost always retest their lows, so anyone thinking “happy days are here again” is likely to be disappointed.” 

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