Market Insights

Earnings season is off to another strong start, thanks to big banks and financials.

JPMorgan Chase (JPM), Bank of America (BAC), Citigroup (C) and Morgan Stanley (MS) all reported strong quarters. A combination of banking, trading and investment management drove the results.

JPM, BAC and C, the three biggest U.S. lenders, had similar numbers. The biggest growth across the group resulted from a rebound in bond trading after a sharp slowdown the previous year. However, investors care less about this business because it’s so volatile.

More importantly, core banking was strong across all three. That includes activities like credit cards, business lending and auto financing. The industry continues to benefit from the strong economy as household finances and creditworthiness improve. Still, low interest rates are a potential headwind.

MS had the biggest rally among financials, ripping almost 8 percent. A huge gain at its investment-management business drove the stock its highest level since March 2018. Bond trading and wealth management also contributed.

Goldman Sachs (GS) had a mixed quarter because of legal costs from an old case in Malaysia known as 1MDB. Going forward, the Wall Street powerhouse is trying to reinvent itself as a mobile-banking innovator in both the U.S. and China.

Wells Fargo (WFC) was the biggest laggard among banks. It’s down about 7 percent in the last week after earnings and revenue both missed estimates. WFC continues to struggle with legal and customer problems after a fraud scandal in 2016.

Delta Airlines Takes Off

Delta Airlines (DAL) beat consensus on its top and bottom lines. Higher ticket prices and strong travel demand boosted the top line. Lower fuel prices helped the bottom line. Transports remain one of the weaker parts of the market and DAL has been range bound for the last two years.

Taiwan Semiconductor (TSM) gave a bullish outlook, especially for 5G networking. That’s a positive for chip makers in general because TSM is one of the world’s top providers.

Lululemon (LULU) hasn’t even finished its fourth quarter yet, and already preannounced strong results. Sales and earnings are both running ahead of earlier guidance as the yoga retailer expands its reach online. It’s also adding men as customers.

Target and Tesla

Target (TGT), on the other hand, warned that the holiday season lagged estimates. Same-store sales rose just 1.4 percent, less than one-quarter of last year’s clip. Electronics and toys were the main culprits. It was a big shock for the retailer, which recently soared to new record highs on a major business-transformation effort.

Other retailers like Kohl’s (KSS), Bed Bath & Beyond (BBBY) and GameStop (GME) also tanked on weak holiday spending.

Exact Sciences (EXAS), a fast-moving biotech focused on cancer treatments, fell after warning that Medicare reimbursements would squeeze results.

Tesla (TSLA) had some bad news from the state of California: Registrations for its electric cars dropped 46 percent in the fourth quarter. That helped cool a blistering rally that’s more than doubled its value in the last four months.

UnitedHealth Beats Again

Health-insurance giant UnitedHealth (UNH) beat estimates again, maintaining a string of positive surprises. Cost-management efforts continue to support its margins.

Perrigo (PRGO) said 2019 revenue would beat estimates thanks to a fourth-quarter acceleration of its business. That made the over-the-counter drug company the best-performing member of the S&P 500’s in the last week, up 19 percent.

But then you had Boston Scientific (BSX), which crashed more than 5 percent on weak sales guidance.

In conclusion, the first big week of earnings season is almost done. Big financials performed well, as anticipated. TGT was surprisingly weak, while DAL was unexpectedly strong. Chips continued to show a trend of rising orders as the big 5G buildout begins.