The U.S. earnings season began with Friday's financial institutions publications. In addition to this, we have already had several publications for some time, although less significant. At this point, we haven't even learned 10% of the reports from the S&P 500 index. How is the season going so far?
Growth
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Create account Try a demo Download mobile app Download mobile appSlight revenue growth in the financial sector and a decline in profits, looking at the aggregate data (bars at the top of the chart).
Source: Bloomberg
Surprise
In this case, we see very little surprise in revenues, definitely less than in previous seasons, although of course it's worth remembering that the current season has just begun. Profits surprise positively, including in financials, although it should be remembered that expectations themselves were set relatively low, as usual.
Source: Bloomberg
Possible liquidity surge
Janet Yellen suggested on Friday that the debt limit will be reached on January 17, (tomorrow because today is a day off). Theoretically this suggests that the amount of cash in the Treasury Department's main account will be reduced, and at the same time this cash will go to the private sector. This should increase liquidity and give support to the S&P 500 (bottom of chart). In the past, when the debt limit was reached, the TGA quickly fell into the neighborhood of 100 billion, and now it is over 300.
A drop in TGA would suggest higher bank reserves at the Fed (though here we've been seeing a turnaround for some time, although reverse repo operations are the culprit). Nonetheless, the decline in TGA cash is likely to have at least a temporary effect on reserve growth. At the bottom of the chart, on the other hand, we see a comparison of reserves and the S&P 500. Higher reserves, positive impact on the S&P 500. Source: Bloomnerg
However, it is worth remembering that the decline in TGA and the increase in reserves may be temporary. Once the new debt limit is reached, we will see an increase in TGA funds. On top of all this, the Fed is conducting QE, which means we will have a double pull of liquidity from the market. However, it will not be immediate. What conclusions can be drawn from this? At the moment, the recovery in the stock market can be prolonged, even if the earnings season is not stunning. On the other hand, liquidity will be pulled off in a few weeks, which could return the S&P 500 to its downtrend. At the same time, the current processes should be anti-dollar.
The US500 is at an important resistance point. If a breakout occurs, the US500 could reach the area around 4200 points, although most likely this may not be the start of a new uptrend. Source: xStation5
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