Does the Bull Market Still have Room to Run? Investors Look for Evidence

If earnings season is going to be the catalyst for higher stock prices, it certainly didn’t look like it on day one. Better than expected earnings from JP Morgan Chase and Citigroup on Friday did nothing, either for their own share prices or for the broader market. On the day, JP Morgan Chase skidded by 2.7 percent, while Citigroup lost 1.6 percent, as sluggish loan growth in the quarter sapped whatever enthusiasm there was for better bottom lines. Overall, the S&P 500 index itself fell 0.3 percent on Friday, although it did manage a 2.0 percent gain for the week.

Of course, we have a long way to go before we know how strong first quarter earnings will be. And in the week ahead, the banking industry has another chance to impress with Bank of America, Goldman Sachs and Morgan Stanley among others scheduled to report. But the banks have been lackluster performers lately. Along with technology stocks, the banks helped drive the market recovery from the early February low. But for both, that rally ended in the second week of March after the imposition of steel and aluminum tariffs raised concerns about the impact on world growth. Both sectors fell sharply for the next two weeks, where they joined the rest of the market which had, for the most part, remained weak since February.

Since that March 23 low, the overall market has managed a modest gain of 2.6 percent, but banks have been no better than a less than market performer, up 2.4 percent. Technology stocks, in contrast, are higher by 3.2 percent since March 23. If the economy picks up as expected, so too could loan growth, which in fairness has climbed in three of the past four quarters, and monthly since last November, although the pace is modest. A steeper yield curve would also help. But the reaction to Friday’s earnings reports suggests that investors want to see hard evidence, not just expectations.

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