Bank Rally About To Be Tested
Peter C. Beller, 04.16.09, 06:45 PM EDTBank profits continued to surprise from Regions and JPMorgan but now Citgroup and GE Finance report.
Financial stocks will be in the spotlight Friday as banks continue to issue earnings reports that show surprising profits, and even growth, in the midst of recession and write-downs.
Investors will find out Friday ifCitigroup ( C - news - people) and General Electric ( GE- news - people ) will continue the recent spate of robust first-quarter earnings displayed by Wells Fargo ( WFC - news- people ), Goldman Sachs ( GS - news - people ) andJPMorgan Chase ( JPM - news - people ). (See "Trapped By The TARP." and "All That Glitters Is Goldman.") Citigroup will be closely watched as a barometer of the industry, and the economy. If it does poorly, investors might dismiss gains by Wells and Goldman as company specific.
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"They're a more diversified, and have felt more pressure from the weak economy and deteriorating credit markets," Mark Lane of William Blair said, referring to Citigroup as well asBank of America ( BAC - news -people ). "To see any signs of improvement would be a more positive sign for the broader economy."
Though known primarily as an industrial and media conglomerate, General Electric will be subject to a large degree of scrutiny due to its trouled financial arm, GE Capital. The unit, which provides loans for infrastructure projects, home sales and consumer credit cards, has been plagued by the financial crisis and global economic slowdown--particularly the real estate market.
Thus far, the suprisingly strong earnings reports have led theFinancial Select SPDR ( XLF - news - people ), an exchange-traded fund that tracks financial stocks, to advance 19.2% over the past five trading days, well ahead of the 2.7% gain made by the S&P 500 index.
Commodity traders can't take their eyes off China, which is scooping up copper, soybeans and other raw materials even as signs of global economic slowdown continue to show up. Soy hit a six-month high this week as China stockpiles the protein source, a situation all too familiar to traders in the copper market where Chinese buying has pushed prices up despite declines for other industrial metals. (See "Is China Hoarding Copper?")
The link between cheap fuel and more airline passengers appears to be unraveling in the face of recession. In the last two days both Southwest Airlines ( LUV - news - people ) and American Airlines ( AMR - news - people ) parent AMR reported quarterly losses despite significantly less expensive fuel prices. (See "Fuel Costs Are Down But Nobody's Flying") Unemployment and shaky consumer confidence are holding people back from spending, which could spell disaster for the industry if oil prices rise.
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