Earnings Season Has Started: Here Is The Emerging Picture

Banks kicked off Q1 earnings last Friday with a painful start: XLF fell 1.3% on Friday alone led by a 6% plunge in JPM stock, and dropped even more on Monday despite strong results from Goldman. While JPM earnings beat (most) expectations, and left 2024 Net Interest Income guidance unchanged, investors were concerned about the conservativeness from the management teams on NII guidance despite fewer rate cuts expectation. There are two major takeaways: (i) price actions post banks earnings suggest a high bar from investors, particularly on 2024 guidance; (ii) despite above-trend growth outlooks, policy/macro uncertainties, along with inflation concerns, may lead to conservativeness from the management team

Will we see similar trend for the broader cyclicals names? Maybe. As JPM's trading desk muses today, while MegaCap Tech have proved themselves to print robust earnings in a high rate environment, for the broader Cyclicals group, particularly Financials, Consumers and Industrials, policy uncertainties and inflation concerns may weight on management outlooks.

One example is Fastenal (an Industrials canary) which cited weak 1Q demand, but 2Q and 2H should see better top-line growth based on leading indicators. The market will be listening for positive 2Q/2H outlooks to confirm these signs. Despite continued weakness in manufacturing and some signs of slowdown in other services (e.g. restaurants), travel trends are strong.