JP Morgan, Wells Fargo Earnings Top Estimates: Key Takeaways

Jeff Macke

Today marks the start of the earnings reports that really matter --the bank stocks. This morning we heard from two of the biggest.

Wells Fargo (WFC) and JP Morgan (JPM) reported their results for the first quarter, both beating expectations, albeit with the ever present "noise" familiar to shareholders of big banks.

JP Morgan came in with EPS of $1.31 on $26.7b in revenues; impressively above the estimates of EPS $1.18 and revenues of $24.6b. Under the headline were murky details like credit cards swinging from a loss to a gain largely as a result of the release of $2billion in loan loss reserves.

Wells Fargo delivered earnings of $0.75 on $21.6b in revenues, handily ahead of estimates of $0.73 and $20.4b, respectively.

Suffice it to say large banks do a lot of different things and have much latitude in how they choose to compile EPS. That doesn't mean the numbers are crooked or designed to obscure underlying issues, just that big banks are complicated.

The real takeaways from what we heard this morning are these:

1. The economy is improving, albeit in a slow and imbalanced way. Demand for auto and mortgage loans was weak at JP Morgan. Credit cards were strong. Mortgage lending at Well's Fargo was up to $129b compared to $84b last year.

Call it evidence of baby-step economic improvements.

2. The next big move in your portfolio will be determined by how the bank stocks react to their earnings.

The financial sector led the rally in the first quarter. As of now JPM is up over 30% for the year, Wells Fargo has gained over 20% and the Financial Sector SPDR etf (XLF) lags just behind both.

As Nesto says in the attached video, this is a "What now?" quarter for the financials. The stock market has given bank stocks the benefit of the doubt by bidding them higher for the last six-months. In turn the rally in financials catalyzed a 10% year-to-date rise in the S&P500.

If the financial sector is going to continue to lead the broader market higher, the earnings better be not just good, but absolutely dazzling. It's early but so far in today's trading investors are selling the news of Wells Fargo and JPM's earnings beats.

Will Financials lead or lag the market moving forward? Let us know your thoughts in the comment section below or visit us on Facebook.