Markets are risk-off due to fear of contagion from First Republic Bank’s imminent collapse

Earnings season is ramping up, with results have been much better than market’s expectations. Tech stocks are leading with a 0.64% increase in the Nasdaq on Wednesday. Meta shares shot up 12% after the company posted an earnings beat of $2.20 per share versus an expected $2.03. Revenue, meanwhile, came in at an expected $28.65bn versus a $27.65 bn estimate. 

Microsoft shares, meanwhile, jumped 7.24% on a beat of $2.45 per share versus a $2.23  estimate; while revenue posted at $52.86bn, versus a $51.02bn estimate. Alphabet Inc. Google’s parent company has also beat out analyst estimates; with an EPS of $1.17 against $1.07; and revenue of $68.81bn against $69.79bn.

Despite the recent bank crisis, the largest banks in the U.S. have also reported positive news as JPMorgan Chase recorded a net income of $12.6 billion, which represented a 52% increase from the first quarter of the previous year. Its revenue also grew by 25%, reaching $38.3 billion from the same period last year. Other financial institutions such as Wells Fargo, Citigroup, and PNC earned $5 billion, $4.6 billion, and $1.7 billion respectively. 

Post-Market

According to a report by Bloomberg intelligence, about a fifth of the S&P 500 Index have posted their earnings for Q1 of 2023, and more than 77% of these reports were better than expected. Despite revenue strength in the tech and banking sectors though, earnings are a lagging signal; and markets are still wary about the contagion risks coming from the imminent collapse of First Republic Bank, a regional institution that saw its shares drop 50% after the U.S. government was unwilling to rescue the bank after it saw a run of more than $100bn out of $167bn of its deposits. 

The Dow dipped nearly 0.7%, with additional pressures coming in from an uncertain dollar ahead of the U.S. quarter-on-quarter GDP release for Q1, which will be released later today, 27 April at 15:30 (GMT+3), economists expect a slowdown to 2% growth, down from 2022 Q4’s 2.6%. A slowdown in line or even worse than analyst estimates might add extra fuel to the outlook that the Fed will pause or reverse pace on rate hikes – boosting the equities market. 

Upcoming earnings reports include Amazon today, Exxon Mobil and Chevron next Monday, May 1; Pfizer and AMD on Tuesday, May 2; and Apple on Thursday, May 4. 

As a  friendly reminder, do keep an eye on market changes, control your positions, and manage your risk well.