Market commentary: Full steam ahead for US financials

Thursday was a negative day for stocks all across the globe, with equity indexes from Australia to US and for Europe to Japan largely in the red. While most equities were posting daily losses Chinese shares, once again, set themselves apart from the market with the Shanghai Index rallying 2.59% overnight, and Hong Kong’s stocks adding 0.36%. 

Despite a 32.37% run up since the beginning of the year, the Shanghai Composite Index seems to still be attractive for investors that continue to hit the “BUY” button, fuelling an upside trend that some analysts have begun to see as unsustainable, especially when the Chinese economy appears to be divergently slowing down.

Across the Pacific, another sector set itself apart from the broader market: the US Financials. The S&P 500 Financials Total Return Index rose 0.87% so far this week, while the S&P 500 Banks Total Return Index gained over 2% throughout the last four trading sessions, supported by the positive earnings releases of major banks and credit institutions.

Tuesday JPMorgan Chase & Co., the largest bank by assets, reported better than expected quarterly results that beat analysts’ forecasts on both revenue and EPS. The bank posted revenue of $24.8 billion, fuelled by a top line’s growth across all divisions. Profitability also improved, with the firm reporting an adjusted EPS (excluding legal expenses) of $1.58, $0.18 ahead of expectations, and a GAAP EPS of $1.45.

Helped by strong earnings, JPMorgan has also announced a quarterly dividend of $0.44 per shares, a 10% increase respect to 2014 that brought the forward yield of the stock to 2.76% at the closing price of yesterday. Shares in the bank gained 3.81% since Monday, and are posed to continue the upside trend should the broad market shake off short-term selling over the next few sessions.

Wells Fargo and Co., the largest bank by market capitalisation, also reported on Tuesday, posting earnings that exceeded analysts’ expectations on both profit and revenue. The San Francisco-based bank posted first quarter revenue of $21.3 billion and an EPS of $1.04, $0.06 ahead of market forecasts.

While Q1 net income remained in line with what reported the same period a year ago and Community Banking’s net income declined by 4.66%, the Wholesale Banking and Wealth, Brokerage & Retainment divisions posted a net income growth of 3.16% and 18.10% respectively. Shares in Wells Fargo are 1.14% higher this week, despite dropping almost 2% on Tuesday after the earnings release.

Goldman Sachs Group Inc., reported its first quarter results yesterday, largely beating analysts’ expectations with revenue at $10.62 billion, $1.27 billion ahead of forecasts and EPS of $5.94, a full $1.68 ahead of analysts’ estimations. The positive results were achieved through sizable growth across all business lines, despite increases in expenses and compensations.

The bank also announced an 8.33% dividend’s increase, raising its quarterly payout to $0.65 per shares, which amount to a forward dividend yield of 1.30% as at yesterday’s closing price. Shares in Goldman Sachs gained 4.6% over the week, closing at $200.21 on Thursday.

Finally, Blackstone Group LP, the largest manager of alternative assets, also released its first quarter results yesterday, beating analysts on both revenue and profit. Adjusted profit doubled to $1.62 billion or $1.37 per shares, while revenue came in at $2.51 billion, 66.2% up from the same period in 2014, and almost half a billion ahead of expectations. 

The alternative asset management firm confirmed to be one of the most profitable financial institutions on the market and to be able to generate cash and excess returns on a consistent basis. Blackstone also announced that its quarterly dividend will amount to $0.89 per share, 14.1% up from last quarter and delivering a remarkable forward yield of 8.65%. Blackstone’s shares gained 6.14% this week and over 36.50% throughout the past 12 months.

This article was issued by Paolo Zonno Trader/Analyst at Calamatta Cuschieri. For more information visit, www.cc.com.mt . The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.

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