Earnings & Oil Moving Markets
The stock market was placid on Monday, but there was a lot going on under the surface because of two big earnings reports from Bank of America and Netflix, and the crash in oil prices. The S&P 500 was down 0.1% and the Russell 2000 was down 0.51%. The Dow was brought 0.18% higher because of the financials. JP Morgan and Goldman Sachs pushed up the Dow as they were up 4% and 2.2% respectively. The Nasdaq is going to be down on Tuesday because of the weak Netflix earnings. I mentioned the market needed the financials to do well, but obviously, the financials can’t be the only driving force. 8 out of 11 sectors were down. The financials were the best as they were up 1.8% and energy was the worst as it was down 1.18%.
Energy was down sharply because oil prices crashed 4.2% to $68.06. The decline occurred because the Treasury Department stated some oil buyers can get waivers from America to buy Iranian oil despite American sanctions on the nation. As I will review in a future article, oil prices were a big benefit to June retail sales. A further decline in prices would hurt those gains. However, I don’t see a collapse coming because demand is still strong and there’s a deficit in the market. I think declines like this are a blessing because it lowers headline inflation and helps producers and consumers. An alternative way of looking at this situation is to say the consumer and producers have been hurt by the Iranian sanctions and now the price reflects supply and demand more accurately.
Bank Of America Earnings
I was wrong to suggest that Bank of America’s earnings would be poor like Citi and Wells Fargo. I was also wrong to suggest its stock would fall after earnings like the others. Bank of America’s earnings helped the stock move up 4.31% and push the whole sector higher. Q2 EPS was 63 cents which beat estimates by 6 cents and was up 43% from last year. Profits were up 33% to $6.8 billion which beat estimates for $5.92 billion. A big reason behind the decent quarter which beat estimates was cost-cutting as the bank cut expenses by 5% to $13.3 billion which was $200 million better than expected. Revenues were up 3% to $22.6 billion (excluding a one-time year ago business sale) which beat estimates by about $300 million. Income taxes helped profit growth as they fell 43% to $1.7 billion. On the bright side, they allowed the firm to invest $500 million in technology.
