Cautious Market Digests Earnings Announcements

Stocks opened mixed today with little direction. Traders are mostly reacting to individual corporate earnings announcements (see below). Near-term sentiment remains cautious due to rising interest rates and a widespread feeling that the market is due for a correction. The VIX fear index ticked up to 19 yesterday for the first time since October. Bonds are selling off again as rates move higher. The 10-year US Treasury Note yield is up around 4.67% from 3.88% at year-end.

This jump in bond yields is mostly due to persistent economic strength, which makes it less likely that the Fed will lower interest rates soon. Case in point: US retail sales jumped .7% in March from February, even as February’s spending growth was upwardly revised to .9% On a year-over-year basis, retail sales is up 4%. No matter how we look at the data, consumer spending remains healthy.

Bank of America (BAC) reported uninspiring first quarter results and the stock fell over 3%. Revenue growth fell 2% from the year-ago quarter. Net interest income, credit card income, deposits, and loan growth were all basically flat. And management set aside more cash against the potential for loan losses. Investment banking was the sole bright spot, with fees up 35%.

Morgan Stanley (MS) reported better than expected results and the stock popped over 3%. Revenue growth improved to 4% y/y, the highest since the fourth quarter of 2021. At long last, investment banking rebounded sharply, +16% y/y. The CEO sees pent-up demand for M&A and deal-making. in addition, revenue from securities trading and wealth management was a bit better than most analysts anticipated.

United Healthcare (UNH) is up 6% after reporting so-so first quarter results. Revenue rose 9% from year-ago levels and earnings per share grew 10%. Growth has slowed over the past year due to rising medical losses. And the company’s operations were recently disrupted by a cyber attack that may end up costing up to $1.6bil. So most traders and analysts were relieved that results weren’t terrible.

PNC Financial (PNC) stock fell after reporting better than expected earnings. The CEO cited a “tough revenue environment” but thinks it will begin to turn around by mid-year. Net interest income fell 4%, loan growth fell 1%, and deposits fell by 1%. The company has cut costs and reduced its exposure to commercial real estate. In fact, CRE is just 11% of total loans. The CEO admitted that CRE is a “real issue…and will play out over time.” But it’s “not today’s problem,” nor is it systemic across the entire banking sector. He also said the economy seems stronger than what loan growth would suggest.