During what was expected to be a dismal earnings season, positive news continues to come up. Today, Citigroup Inc. (NYSE: C) reported better than expected results, which ended up driving all financial stocks higher following a recent slide. Vikram Pandit and team provided the surprising results, and it seems that nearly the entire market benefitted today as a result.
What drove the improved results? As somewhat expected, fewer borrowers have defaulted on their loans. This could be an encouraging sign that borrowers may be returning to financial health – or, it could be a sign that the same troubled borrowers from two years ago are now seeing temporary relief in modified mortgages. Either way, loan losses are down, and that is critical to the financial behemoth.
Wells Fargo (NYSE: WFC) and JPMorgan Chase &Co. (NYSE: JPM) shares rose following Citi’s news, providing a pleasant rebound from last weeks fall amidst allegations of improper foreclosures. Mike Schenk, vice president of economics and statistics at the Credit Union National Association, commented “Earnings will be at the forefront. Underlying that will be any information we get out of the consumer sector.”
Investors will be turning their attention to corporate earnings this week as dozens of large companies report their results. Broad economic reports have been the main factor driving stock trading in recent months. Although the macroeconomic news has been digested by consumers and investors in unprecedented proportions, a return to normalcy must coincide with stock prices dependent primarily on their firm’s earnings results. As the third quarter earnings season is now in full swing, within a few weeks we will see if we have that order yet.
The health of the consumer will likely be more apparent in earnings outlooks from consumer goods companies and Thursday’s weekly unemployment report. As we look towards the looming holiday season, positive earnings results pushing stock prices higher could improve the consumer psyche. Consumer spending continues to drive the economy, and with the highest unemployment rate in nearly thirty years consumers are looking for greenshoots to justify expanding their spending. Otherwise, we may see another holiday season flush with savers, in unprecedented American economic proportions.
