JP Morgan Chase (NYSE:JPM)
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As earnings season picks up, close attention is turning to the words and numbers of global banks that operate at the nexus of capital markets, economics and evolving government policies.
Money managers say a confluence of recent economic and market factors makes banks' earnings particularly worthy of close parsing this quarter. Banks' results could shed light on the state of the U.S. housing market and conditions in Europe amid uncertainty over about global economic prospects. The results come as warm spring weather in many parts of the U.S. has cast doubt on the reliability of traditional economic gauges.
"Alcoa's always a cute bellwether, but you start getting into things like J.P. Morgan and Wells Fargo, you start learning more about the real state of the economy," said Steve Sosnick, equity risk manager at Interactive Brokers LLC's Timber Hill unit.
J.P. Morgan Chase & Co. (JPM) and Wells Fargo & Co. (WFC) are due to report Friday before the U.S. market open, followed by others such as Bank of America Corp. (BAC) next week. The banks' reports follow aluminum producer Alcoa Inc.'s (AA) release Tuesday, which is typically seen as the unofficial start of earnings season.
A handful of market observers said they'll pay special attention to bank executives' tones in describing the housing and credit markets.
"This gets back to the broader debate about, how strong is the economy?" said Barry Knapp, managing director of equities research at Barclays in New York. "If what you hear out of the banking sector is that conditions are stabilizing but not improving that quickly, that, to me, would be a confirmation of the payrolls on Friday."
The Labor Department reported disappointing payroll data Friday that added fuel to a five-day selloff in stocks.
Meanwhile, banks have accounted for an outsize share of the stock market's gains. Financials have risen the second-most of the 10 sectors in Standard & Poor's 500-stock index this year, behind technology. Whether the sector continues to lead the market higher depends in part on banks' ability to show they're growing lending and other areas of their businesses.
Analysts expect the S&P 500 financials sector's earnings to climb 7.3% in the first quarter, according to a Thomson Reuters poll, compared with 3.3% growth in the index overall. But revenue growth in the sector is expected to decline 1%.
The financial sector's performance has been closely correlated with that of the broader market in recent years, said Jack Ablin, chief investment officer at Harris Private Bank. Financial earnings could help steer the broader market if that trend continues.
"If financial profits disappoint, the overall market could disappoint too," Ablin said.
-By Matt Jarzemsky, Dow Jones Newswires; 212-416-2240; firstname.lastname@example.org