Sun, Jan 15, 2017 - Page 14 News List

Bank earnings validate Wall St rally

OPTIMISTIC:US stocks have come a long way very quickly and there might be room for a pullback, but the outlook is still relatively positive, an investment strategist said

Reuters, NEW YORK

Quattro M Securities trader Peter Tuchman works on the floor of the New York Stock Exchange in New York on Friday.

Photo: Bloomberg

An increase in Facebook Inc on Friday pushed the NASDAQ Composite to a record high and the S&P 500 also rose after major US banks started the fourth-quarter earnings season with strong results.

Wall Street has surged since US president-elect Donald Trump’s unexpected election victory on optimism he will cut corporate taxes, spend on infrastructure and deregulate banks.

With stocks trading at price-to-earnings valuations well above historical averages, many investors believe further gains will depend on S&P 500 companies handing in strong report cards over the next several weeks.

Major banks on Friday did not disappoint: Bank of America Corp , JPMorgan Chase & Co and Wells Fargo & Co all posted quarterly profits above analysts’ expectations.

They also expressed optimism about this year in their first public comments about earnings since Trump won the election in November last year.

Their shares on Friday surged more than 2 percent, but later gave up most of those gains. Wells Fargo ended 1.36 percent higher and JPMorgan added 0.53 percent.

The S&P financial sector has jumped about 17 percent since the US election, far outpacing the S&P 500’s 6 percent rise.

“Earnings are key going forward and we’re off to a decent start,” said Mike Baele, managing director with the Private Client Reserve of US Bank in Portland, Oregon.

The Dow Jones Industrial Average dipped marginally, with Wal-Mart Stores Inc and other consumer stocks down after a report showed US retail sales and core retail sales increased less than expected last month.

Trading volumes were light, with financial markets closed tomorrow for Martin Luther King Jr Day.

On Friday, the NASDAQ Composite added 0.48 percent to a record-high close of 5,574.12, bringing its gain so far this year to 3.55 percent. The Dow Jones Industrial Average slipped 0.03 percent to 19,885.73, while the S&P 500 gained 0.18 percent to 2,274.64.

For the week, the Dow fell 0.4 percent, the S&P 500 shed 0.1 percent and the NASDAQ gained 1 percent.

The biggest boost to the S&P 500 and the NASDAQ on Friday was provided by Facebook, which jumped 1.36 percent after Raymond James Financial Inc upgraded the stock.

The combined profit of S&P 500 companies is expected to have risen 6.2 percent in the fourth quarter of last year, according to Thomson Reuters I/B/E/S.

The S&P 500 is trading at 17 times expected earnings, compared with its 10-year average of 14, according to Thomson Reuters Datastream.

“We’ve come a long way very quickly, so there’s scope for a pullback, but overall the outlook for 2017 is relatively positive,” said Jon Adams, senior investment strategist at BMO Global Asset Management.

Bank stocks are to stay in favor with investors as long as earnings reports in the coming week keep show an improving profit outlook while investors wait to see if Trump lives up to his campaign promises.

Advancing issues outnumbered declining ones on the NYSE by a 1.69-to-1 ratio; on NASDAQ, a 2.34-to-1 ratio favored advancers.

The S&P 500 posted 31 new 52-week highs and three new lows; the NASDAQ Composite recorded 126 new highs and 14 new lows.

About 5.8 billion shares changed hands on US exchanges, lower than the 6.4 billion average in the past 20 sessions.

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