Earnings season is upon us as we analyze which sector will boom in the near future. Last night, I noted that Estimize expected BIG profit numbers from the three large banks that reported quarterly updates this morning.
Wall Street analysts anticipate that JPMorgan Chase (JPM) would report $3.01 per share. Estimize volunteers (all 79 of them) projected that JPM would report $3.35. That latter estimate was more than 10% higher than the analyst number.
Financial Sector Evaluations
Despite topping Wall Street expectations by reporting $3.33 and besting revenue numbers, JPMorgan shares shed 5.5% after executives said it anticipated headwinds in the future. Wages are going higher, revenue could be weaker, and the company is likely to miss on a previous forecast of 17% return on capital. The situation wasn’t any better for Wells Fargo (WFC), which fell 7 cents short of Wall Street estimates (and 16 short of the Estimize number.
Not good. This is a warning for the regional banks as they begin report earnings next week. We witnessed a big run in the financial sector over the last two weeks, and it appears that many speculators are taking profits off the table…
Market momentum is squarely negative right now after Thursday’s massive tech selloff. The Direxion Daily Financial Bear 3x Shares ETF (FAZ) is up 4% in the first half of the trading day. The selloff in the big banks this morning should be a concern as investors approach options expiration next week.
Dating back to March, the third week of trading each month has fueled a lot of selling. With many speculators trading calls and January expiration coming next Friday, the air is taken out of the speculation. Heading into next week, I urge a lot of caution once again.
Energy Sector Remains Positive
Right now, the only positive sector in the S&P 500 is the energy business. Oil prices continue to rise and will finish with the fourth-straight week of gains. WTI crude pushed above $83 (I have a $100 to $120 target by mid-year), while Brent crude pushed above $85. And I think the path continues to show that oil prices are heading higher. But don’t be surprised if we see some investors taking gains off the table.
Again, some of the top picks in Devon Energy (DVN), Marathon Oil (MRO), and even Chevron (CVX) are rising thanks to the uptick in crude. Unless more producers bring more oil online, I expect that demand will outstrip supply later this year. I remain very bullish on the producers and the midstream pipeline operators for the years ahead.
I’m on vacation next week in Boone, North Carolina. We’re taking our four-year-old to witness snow for the first time ever… but I’ll be paying close attention during options week and offering some insight on how to approach the weeks ahead.