G3 Recap 1-19-11

Main Items:

  • US Housing Starts declined to 529k in Dec vs 550k expected and 555k previously. Single family starts were the driver, and was concentrated in the Northeast and Midwest.
  • Earnings: (misses in bold)
  • GS: 3.79 vs 3.794. Revenues of 8.64bn vs 8.86bn.
  • Wells Fargo: 69c ex-reserves release vs 61c. Revenues of 21.49bn vs 21.07bn.
  • US Bancorp: 47c (1c reserve build) vs 46c. Revenue 4.72bn vs 4.53bn
  • Amex: 94c vs 96c. It is consolidating its facilities and taking a 6c charge against it.
  • BoNY: 58c vs 57c.
  • Ebay: 52c vs 47c. Revenue 2.495bn vs 2.49bn. Sees 2011 Adj EPS 1.90-1.95 vs 1.86 est. Sees 2011 Revenues 10.3bn-10.6bn vs 10.2bn est.
  • AMR: -0.21 vs -0.318

Overseas Data:

  • Several ECB members tried to tone down the market’s hawkish interpretation of Trichet’s comments last week. Nowotny said “the statements … have been perhaps interpreted in a rather one- sided way.” Orphanides said that there is sometimes an “overreaction to the underlying message.” Even Weber toned down his hawkish rhetoric, saying that risks are still “more or less balanced.”
  • UK Jobless Claims declined -4.1k in Dec. vs 0 expected.
  • Sir John Vickers will use a speech on Saturday to make clear that big banks are mistaken if they believe his government-appointed Commission on Banking will leave them intact – FT.


  • JPM’s strong earnings were not shared by its peers. As a result, the stock market, which had gotten used to positive surprises, sold off, lead by the financials. The underlying macro story, however, remains fairly good. Wells Fargo and US Bancorp both reported growth in their loan portfolios, spread out across various segments. This suggests that S&P earnings can continue to grow. Model forecasts currently suggest a ~25% YoY EPS growth, which is just a tad higher than current Bloomberg average forecasts:

    This suggests that the broader S&P rally should remain intact, and this correction is likely position driven.
    HOWEVER – various sentiment indicators have suggested high levels of bullishness for a while, so there is a risk that the position unwinds could accelerate. The S&P 14 week RSI broke above 70 last week, which has historically foreshadowed periods of consolidation: