The US reporting season started with full speed, bringing strong support to the Wall Street markets. Major banks already posted their earnings statements during the week, including Citigroup, JP Morgan Chase, Wells Fargo, Bank of America Corporation, Bank of New York Mellon Corporation, BlackRock, Goldman Sachs Group, U.S. Bancorp, Morgan Stanley, and American Express Company. during the week was published also the financial statement of the video streaming giant Netflix.
Slightly more than 6% of S&P companies already published their reports with 85.3% reporting better than expected figures on revenues and earnings.
On first sight, it can be seen that all the financial institutions failed to meet market expectation on fixed income assets, but most of them had strong earnings and revenues.
The six largest US banks crossed the threshold of 100 billion USD of total profit in Q4 2018. Since the beginning of the new US reporting season, Goldman Sachs, JPMorgan Chase, and the other leading financial institutions reported a profit of more than 111 billion USD in 2018.
Among the reasons for the strong results are the tax reform of the US President Donald Trump, as well as the rising interest rates, the higher number of deals and the boom in retail banking.
JPMorgan and Bank of America recorded a record year, while Goldman Sachs and Citigroup have made their biggest profits since the financial crisis. The impressive amounts and positive comments from bank senior managers may help to distract the fears that interest rate rises and trade strains may end good times for the biggest creditors.
The Bank Index Index, KBW Bank Index, rose by 11% this month, driven by the results for the last quarter of 2018. The benchmark, which includes 24 components, collapsed by 20% in 2018, which is its worst performance for seven years.
At the same time, the record amounts will feed the critics of the 2017 tax reform, according to which the changes it brought are more beneficial for large companies than for middle-class citizens and small business.
Within the banks themselves, the benefits of reducing corporate tax go to shareholders rather than to employees of financial institutions. The profit of the five banks jumped by 28% from their previous peak, and the wage bill increased by only 1.8% over the previous year.
Netflix failed to meet part of its targets
Netflix’s earnings forecast for the first quarter was slightly below analysts expectations, even after a record number of new subscribers.
The company released its popular movie “Bird Box” at the end of December, helping to attract 8.8 million new paid subscribers in the fourth quarter.
Nevertheless, investors seem to have reflected this price increase in their ratings, pushing Netflix’s value more than 50% up from the end of December to date.
The company plans to create original TV shows and movies for its future global expansion, which aim to attract new consumers and persuade them to pay monthly subscriptions.
But it faces growing competition from established television and film producers like Walt Disney, which has stopped providing its new movies to Netflix, planning to open a competitive streaming service later this year.
AT&T and Comcast also work on their own streaming offerings.
For the fourth quarter, Netflix reported revenue of 4.19 billion USD, slightly below the expected 4.21 billion USD.
Its earnings forecast for the first quarter is 4.49 billion USD, slightly below the expected 4.61 billion USD. Netflix net profit for the first quarter will reach 253 million USD, well below Wall Street’s forecast of 371 million USD.