Wednesday, July 18, 2018

Ahead of Wednesday’s market open, we see new key Q2 earnings reports. Many of these are from the Financial sector, like Morgan Stanley MS and U.S. Bancorp USB, but we also hear from other industries, like Abbott Labs ABT, as well. After regular trading closes today, we’ll hear from eBay EBAY, American Express AXP and IBM IBM.

But before we get into today’s pre-market results, new Housing Starts and Permits numbers hit the tape, and they were far below expectations. New Housing Starts for June fell 12.3% from the -2.2% consensus, whereas Building permits — a forward indicator on future starts — tumbled 2.2% from an expected +2.2%.

Considering all the good-to-great economic reads we’ve been getting over the past several months, especially in Construction and related segments, these numbers bring somewhat of a negative shock. Analysts had been looking for roughly 1.3 million new starts last month — down from May’s 1.35 million actual — but only brought in 1.173 million. Permits totaled 1.273 million, an improvement of 100K over the starts headline but still below the 1.3 million expected.

What do we take away from this? Not all that much, truthfully. This is but one dent in the armor of an historically robust economy, in a bull market that is almost a decade old but, if Fed Chair Jay Powell is to be taken at his word, still with room to grow bigger and stronger. Yet we will be mindful of these results when new Construction and Housing reads come in the weeks and months to come. Have these markets gotten too hot over the past couple years, and do they look to be cooling off, at least in the near term?

Morgan Stanley may have begat the crown jewel of Q2 earnings results for investment banks thus far (though Goldman Sachs’ [GS] earnings report yesterday was stellar), reporting $1.30 per share on $10.6 billion in revenues — outpacing both the $1.08 per share and $10.0 billion expected. The top line also solidly beat the $9.5 billion from the year-ago quarter.

Net Income Applicable for Morgan Stanley in the quarter shot up 39% year over year, while the crucial segment of Investment Banking rose 21% from Q2 2017. Shares of MS are up 3.3% in pre-market trading, but flat year over year. For more on MS’s earnings, click here.

U.S. Bancorp also outperformed expectations, but by relatively tepid margins: $1.02 per share beat the Zacks consensus by a penny, and revenues of $5.6 billion topped the $5.4 billion anticipated. Beneath the headlines, we also see positive but slight metrics — Net interest Margins grew 5 basis points year over year. For more on USB’s earnings, click here.

Also, Abbott Labs reported Q2 earnings before today’s open, narrowly managing earnings and sales beats as well. A bottom line of 73 cents per share took out the 71-cent consensus, and revenues of $7.77 billion outdid the expected $7.73 billion. Beneath this less-than-opulent headline, Diagnostics rose a whopping 47% year over year, and as a result helped push Abbott’s full-year guidance upward on both top and bottom ends of the range, to $2.85 – 2.91 per share. The stock is up roughly 3% in early trading. For more on ABT’s earnings, click here.

Mark Vickery
Senior Editor

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