Big Bank Earnings Cause Another “Bullish Blast”

JPMorgan Chase CEO, Jamie Dimon

Earnings season is upon us and banks posted some gaudy quarterly numbers this morning. Goldman Sachs (NYSE: GS) and JPMorgan Chase (NYSE: JPM) both reported huge “beats” while Wells Fargo (NYSE: WFC) impressed as well, albeit not quite as much as its peers.

GS logged record first-quarter net profits and revenues thanks to its equities trading and investment banking divisions. With a market that’s still rising, it’s no surprise to see banks doing well on this front. Other banks are expected to continue this trend as they report.

“As usual, you see a bit of push and pull between banks’ divisions that cater to Main Street and those that focus on Wall Street,” wrote Bloomberg’s Jenny Surane.

“It seems as though Wall Street took the win. Again.”

Today’s quarterly results have only added to the KBW Bank Index, which is now up over 26% on the year. That’s well above the S&P (+10%), Dow (+10.50%), and Nasdaq Composite’s (+8.00%) returns.

“The first wave of Q1 big bank results look pretty much as strong as most analysts had expected – even stronger actually,” explained JJ Kinahan, chief market strategist at TD Ameritrade.

“It’s possible that we’re in a powerful market that’s in a forgiving mood when it comes to bad news. The path of least resistance for stocks continues to seem to be to go higher, with the market climbing a wall of worries that just doesn’t go away.”

We mentioned yesterday that a strong earnings season would wash away any lingering bearish fears. Bulls are proving that prediction to be an accurate one this morning as concerns over inflation and vaccine delays have been completely erased by bank revenues.

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If other sectors report similar results in the coming days, an already overbought market could easily scream higher.

Fed Chairman Jerome Powell may also provide bulls with additional enthusiasm when he speaks at The Economic Club of Washington later today. Powell is expected to discuss the ongoing economic recovery in the U.S. as well as monetary policy.

“The Fed has assured investors and traders that they aren’t going to change the sailing path of their monetary policy, and further clarification of this is going to come when Jerome Powell speaks later today,” wrote Naeem Aslam, analyst at AvaTrade.

Gold and Bitcoin bulls are showing some hesitancy in response. Precious metals and digital currencies are already down on the day as equities take priority amid record-setting bank earnings.

Powell could cut into gold and Bitcoin further if he indicates any sort of tapering in the Fed’s bond-buying programs.

He’s unlikely to make such an announcement, but it’s seeming like more of a possibility after today’s earnings reports. Investors have long feared a too-strong economy. Evidence of one may cause the Fed to scale back on its liquidity provisions.

In reality, though, only aggressively surging inflation would cause such a response. And even then, Powell has said he’s comfortable with higher inflation. It’d have to reach a truly “eye-popping” level before any adjustments are made.

So, in today’s remarks to The Economic Club of Washington, Powell’s likely to give bulls the “green light” to keep buying for at least another month as corporate earnings smash estimates. April’s consumer price index (CPI) reading is scheduled for mid-May.

The run-up should continue – if not accelerate – until then, pushing stocks into even more overbought territory.

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