Market Overview

As the first season of corporate reports has started for the year, major Wall Street banks provided mixed Q4 earnings results. JP Morgan Chase (JPM), which is ranked by S&P Global as the seventh largest banking organisation globally and also as the largest bank in the U.S. with total assets of more than $3 trillion, reported its profit results of $3.08 per share after $2.57 a year ago in Q4, 2019. The figures topped the average analysts’ consensus estimate of $2.65 per share shown by Reuters and Bloomberg expert polls. The JPM quarterly revenues amounted to $29.224 bln (+3.3% y/y) beating analysts’ consensus estimation of $28.738 bln too, but JPM’s share price fell 1.79% on Friday and it also lost another 0.25% after hours.

One of the possible reasons for this could be some profit-taken, of course, after JPM shares added almost 15% in price since Christmas time both on expectations of a new stimulus package and on new U.S. Federal Reserve regulations allowing buyback of its own shares for the financial sector. A similar situation is developing for Citigroup whose shares have risen 64.5% since the beginning of November, including an initial 13% growth in January 2021. On Friday, however, the price fell more than 7% from its very high point. The market made an adjustment for at least temporary excessive growth, taking into account the fact that Citigroup missed previous quarterly revenue estimates and following the maxima "buy expectations, sell facts", especially when facts failed to impress as much as the market hoped.

In the medium term, the start of the vaccination process worldwide has made the banking sector feel much more confident than just a few months ago. So, it cannot be ruled out that the strategy of buying dips may manifest itself in the coming weeks. However, both the U.S. and European loan portfolios could find themselves in shallow water or partly in a frozen state along with the economy as fears of restrictive lockdown measures to curb the virus are greatly looming. The U.S. Centres for Disease Control and Prevention (CDC) warned that a highly contagious strain of the threadbare Covid-19 originally identified in the U.K. could become the dominant version in the U.S. if there are no measures to slow down the spread.

The multi-week restrictions, which have a strong chance to be extended in a number of European countries, maybe until the end of March, in combination with more than 50 reported fatal cases among elderly people within just days after the first vaccine shot was received, could delay the pace of mass vaccination. Therefore, the prospects of economic recovery may also be shifted in time. As a result, technically overbought stock indices that only managed to climb one small step down the ladder from the top records, may even launch some correction scenarios in order to take a break, just like in September and October.

Markets in the United States are closed on Monday in observance of Martin Luther King Day. Non-combat intervals for the markets have lasted way too long also due to some buck fever of the Democratic camp just two days before the inauguration of Joe Biden, who was recently certified by the Congress as the next President. Almost 25,000 soldiers from the National Guard are streaming into Washington from across the country, and the Federal Bureau of Investigation (FBI) is reportedly vetting every member of those troops in DC amid fears of an insider attack, U.S. defence sources allegedly said to the media. It underscores worries that some of the very people assigned to protect the city over the next several days could present a threat to the incoming president and other VIPs in attendance, Chicago Tribune wrote.

U.S. Army Secretary Ryan McCarthy told The Associated Press on Sunday that officials are conscious of the potential threat, and he warned commanders to be on the lookout for any problems within their ranks as the inauguration approaches. “We’re continually going through the process, and taking second, third looks at every one of the individuals assigned to this operation,” McCarthy said in an interview after he and other military leaders went through an exhaustive, three-hour security drill in preparation for Wednesday’s inauguration. He said Guard members are also getting training on how to identify potential inside threats. “If there’s any indication that any of our soldiers or airmen are expressing things that are extremist views, it’s either handed over to law enforcement or dealt with the chain of command immediately,” he added.

Another star performer is expected from Goldman Sachs Group (GS) that is going to report on Tuesday, January 19. It has a smaller share of lending business vs heavy exposure to trading and investments, which even helped GS to benefit from the pandemic as investors were eager to reset their asset portfolios. In Q3 2020, Goldman’s profit nearly doubled, and that sign of financial success triggered a powerful move in GS’s stock price, which is now trading at an all-time record high above $300 per share, gaining more than 40% over the last three months. On average, analysts forecast $7.04 per share as an expected profit for Goldman Sachs in Q4, 2020 on sales of $9.72 billion.

Bank stocks have “moved back into vogue" due to "optimism about fiscal stimulus, infrastructure spending, rising interest rates [in public bonds] and bigger capital returns", Goldman analyst Richard Ramsden wrote in a note last week, published by Bloomberg. He highlighted that stocks had outperformance since the Fed released its special crisis stress test results in December, which aligned with his view that "bank returns should rebound and recoup” nearly three-quarters of 2020’s decline during the next two years. “When interest rates and inflation expectations are rising together, equity and credit markets actually tend to do quite well. The reason is pretty straightforward: interest rates and inflation expectations rise together when people are getting more optimistic about the economy. Stocks tend to like that,” the analysts of another big banking player, Morgan Stanley wrote.

In the energy sector, Exxon Mobil (XOM) dropped 4.8% on Friday after the news that it is being investigated for overvaluing oil property. The Wall Street Journal announced that The Securities and Exchange Commission initiated the investigation after an employee filed a whistle blower complaint last fall alleging that Exxon overvalued a key asset in the Permian Basin, one of its most important oil and gas properties of the company. In March 2019, CEO Darren Woods said Exxon would increase oil and gas production in the Permian to one million barrels a day as early as 2024, up from previous estimates of 600,000 by 2025. “No one I knew in the organisation thought this was possible; the pressure to deliver on Woods’s promise to the market permeated the organization,” the whistle blower said in the complaint. In a statement released Friday, Exxon called the whistle blower’s claims “demonstrably false.” Exxon's revenue dropped by $20 billion to $46 billion in Q3 2020 compared to a year earlier, but the oil market is steadily recovering, as well as the profits of energy companies. The next earning date for the oil giant is set for February 2.

Among the corporate events of the current week, Netflix and Intel reports also may be remarked. Both of them will report on Tuesday, January 19, after the market's close. The streaming entertainment sector, Netflix and Disney+ in particular, benefited immensely from the stay-at-home environment delivering strong gains for investors last year. But this effect has caused the stock price to soar wildly before, and then Netflix's stocks built a nest that was almost 13% below the record highs last seen in October. Perhaps, the next report tomorrow may show whether this Netflix bird is ready to fly up from the current familiar spot, or maybe it will have to wait more. The main question is how many new subscribers it attracted for the last period, and what new movies the streamers are ready to produce for the rest of the year. As for Intel, its shares have recently been in disgrace due to high competition from other semiconductor manufacturers, and so its financial performance would be crucial.

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