EARNINGS SEASON KICKOFF

The major stock market averages gapped up at the open. The Dow is currently up 200 pts and the SPX is up .4%. The financial sector surged 1.5% on better than expected quarterly results by Wells Fargo (WFC) and JP Morgan (JPM), which kicked off earnings season today. Most other sectors are also trading higher, except real estate and healthcare. Commodities are mixed—oil is moving higher but copper and iron are in the red. Gold is flat today, and so far this year. WTI crude is back up over $64/barrel. Chevron (CVX) announced a deal to acquire Anadarko (APC), and investors are wondering if this is the beginning of a wave of consolidation in the industry. Bonds are trading mostly lower as yields tick higher. The 10-year Treasury yield is back up around 2.54%. If earnings season proves better than Wall Street is forecasting, you can bet interest rates & bond yields will move higher.

JP Morgan (JPM) reported first quarter results that surprised analysts. The bank posted revenue & earnings-per-share growth of 5% and 12%, respectively. Wall Street consensus forecasts called for both metrics to decline. Banks typically struggle when interest rates are very low and the yield curve is flat. So while some business lines like securities trading declined from year-ago levels, Wall Street was expecting much worse.

CEO Jamie Dimon, who often frustrates panicky traders & reporters with his level-headed commentary, had this to say: “Even amid some global geopolitical uncertainty, the US economy continues to grow, employment and wages are going up, inflation is moderate, financial markets are healthy and consumer and business confidence remains strong.” The stock is up 4% this morning.

Wells Fargo (WFC) also beat analysts’ expectations for first quarter revenue on improved consumer lending. Credit card transaction volume rose 5% from year-ago levels and debit card volume was up 6%. Auto loans rose 24%. The company’s CFO called out positive trends in both credit quality and liquidity. That’s what you want to hear from a bank. Unfortunately, management lowered its forecast for net interest income this year. Because the Federal Reserve has paused interest rate hikes, lending will be less profitable than previously assumed. The stock is down 3%.

Disney (DIS) surged 9% this morning after the company announced the long-awaited launch of its video streaming service. Called Disney+, the $7 monthly service is seen as a credible competitor to Netflix (NFLX). Disney expects to lose money on the service for the next five years but believes it must compete aggressively in streaming in order to secure its long-term relevance in content distribution. The stock has struggled since 2015, but today reached all-time highs. Netflix (NFLX) is down 3.7% today because its most popular service is $11 per month.

Chevron (CVX) announced it will purchase Anadarko (APC) for $33bil in order to secure valuable land assets in the Permian Basin. Investors immediately bid up other Permian players such as Pioneer Natural Resources (PXD) on the assumption that more mergers are on the way. We know that Occidental Petroleum (OXY) tried to buy APC and might be looking for another target. Exxon (XOM) might also be on the prowl. CVX is down 5%, but APC is up 33%. PXD is up 9%.


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