Stocks Fall On Friday Led By The Financials
It’s worth a mention that the Syrian air strikes that were feared by the stock market earlier this week were announced by President Trump on Friday afternoon. This could send stocks down on Monday. Geopolitical events are always difficult to determine as speculation swirls. I think the best approach is to be cautious rather than sell as a knee jerk reaction.
Stocks declined modestly on Friday as the S&P 500 was down 0.29%. The bad news was that the financials were down 1.55% after the earnings reports of Citigroup, JP Morgan, and Wells Fargo came out. I will review all three of these reports as they are our first taste of what Q1 earnings will look like.
Citigroup Beats Estimates But Its Stock Falls
Citigroup reported earnings per share of $1.68 which beat estimates for $1.61. Equity trading revenue was up 38%. This makes sense because of the volatility in Q1. There was a 7% decline in fixed income trading. The effective tax rate fell from 31% in Q1 2017 to 24% Q1 2018. Revenues beat estimates slightly as they came in at $18.872 billion which beat the $18.865 billion consensus. Net interest income missed estimates as it was $11.17 billion which was below the consensus for $11.26 billion. Fixed income, currencies, and commodities trading revenue was $3.4 billion which missed the estimates for $3.68 billion.
Citigroup stock was down 1.55% on Friday; it’s up about 20% in the past year which shows these great results may have been already priced in. Because the fixed income trading is a larger business than equities, overall trading revenue was only up 3% to $5 billion. The goods news for Citigroup is the volatility in equities has continued in April so far. The global consumer banking business revenue increase 7% to $8.4 billion with the Latin American division growing 15% to $1.3 billion. When you buy Citigroup, you are doing so because you think the economy will improve, interest rates will go up, and volatility will continue. The forward PE for Citigroup is below the market’s average as it is only at 11. This cheap valuations in the sector could be why some investors are looking to the financials to lead the market higher.