Those investors, who entered this round of earnings season expecting good news, received it. On the other hand, those investors who were expecting abysmal indicators saw their prediction come to fruition as well. Why has this occurred? Various blue chip and financial sector earning reports released over the last week have provided anything but solid insight into what's on the horizon for 2010. Even as companies show robust changes in their bottom lines and balance sheets, trepidation continues to linger and has proven to weigh on investor sentiment since last Monday. On the surface, much-improved earnings-per-share data suggests that equity markets are ready to continue their bull run from last March. Upon a second review, however, excitement building over a so-called end to the recession appears to be a bit premature.
Two trends are dominating the analysis of earnings thus far: the equity market response and the bond market response. Better-than-expected earnings-per-share data from banks have offered equity securities investors hope that profitability is resuming and earnings growth will become a positive trend going forward; yet, at the same time, the loan losses disclosed by other institutions indicates that consumers are still struggling. JPMorgan Chase & Co. exhibited both sides in their most recent earnings: while revenues surged to over $3.3 billion dollars on strong investment banking results, and thus pushing fourth quarter EPS to $0.40 (against $0.30 expected), it suffered tremendous losses on mortgage and credit card loans. Even as non-financial sector companies begin to show steady revenue growth and solid earnings data - Intel Corp and IBM come to mind first, as both outperformed analysts' expectations - the bank data offers the most telling insight into the future of the market. Sizeable losses at banks indicates that consumer credit isn't mending as quick as desired or forecasted, and, going forward, could remained depressed should unemployment continue to hover around ten percent for some time. If consumers and business struggle to find footing in a market about to have stimulus withdrawn from it as an asset bubble begins to build, it's not evidently clear who will seek loans in order to trigger profit growth for banks down the line.