Investors Pessimistic as Earnings Season Gets Going

Following recent pattern, major US stock indexes opened down and are now clawing their way back. Currently, the Dow is down 72 points and the S&P 500 is flat. Year-to-date those indexes are up nicely, but trading is very choppy. Bonds are selling off again today, pushing interest yields higher. Last month bond yields tumbled on recession fears sparked by the banking crisis, but that trend is now reversing. Does that mean some of the fear is melting away?

Retail investors remain very negative about the near-term. CNBC’s latest All America Economic Survey suggests this is the worst time ever to invest in stocks. Just 24% of respondents said this is a good time to buy—the lowest on record. Likewise, AAII’s Investor Sentiment Survey shows only 26% of individual investors are bullish on the near-term. I’d point out that these surveys are often considered contrarian signals, meaning that troughs in sentiment tend to coincide with good times to invest.

Morgan Stanley (MS) reported slightly better than expected first quarter revenue & earnings. That said, earnings fell 17% from the year-ago quarter. Investment banking (down 24%) has suffered during this bear market, and the firm’s CEO doesn’t see it recovering until next year. In addition, management set aside another $177 million to cover possible future losses in its commercial real estate portfolio. On the other hand, the firm’s wealth management operation grew revenue by 10.5% and attracted $110 billion in new assets. The stock is flat this morning.

Travelers (TRV) reported strong sales growth, and managed to surprise investors with a surge in profits. New insurance policy premiums rose 12% from the year-ago quarter, and net investment income in the company’s huge portfolio rose 4.1%. So despite much higher catastrophe losses, it looks like the underlying business is very healthy. In addition, management raised the dividend by 8% and boosted its stock buyback program. Investors like that, and the stock is up nearly 6% this morning.

CNBC interviewed the CEO of PNC Financial Services (PNC) this morning, and he strongly implied that the media are overplaying risk within the US banking system. What happened to Silicon Valley Bank and Signature Bank is “not a system-wide issue” and investors shouldn’t paint traditional banks with the same brush. Deposit flows for his bank are “more than we thought” following last month’s crisis and his “level of concern is not much.” Directly addressing the cause of those bank failures, he said, “These were state-chartered banks that were chasing shiny new objects, that doubled or quadrupled in size in a couple years, that had management that wasn’t up to the task of running a larger institution. They grew that fast, and the regulators missed it. They screwed up, and regulators didn’t catch it.”