The fourth-quarter 2010 earnings season took off to the races on Friday as JPMorgan Chase reported a 47% boost in earnings over Q4 2009, thus confirming analysts' expectations for a positive shift in the finance sector's fortunes after a rough couple of years.
"More than two years after the financial crisis, we believe the U.S. financial services sector is poised to shift toward capital deployment from capital accumulation in 2011," wrote Keefe Bruyette & Wood's North America Equity Research team of analysts in a 2011 finance-sector outlook published in December.
Signs of that shift have already started to appear, with JPMorgan executives talking about an increased dividend—one of the forms of capital redeployment anticipated by KBW. For year-end 2010 and 2011, the analyst team also foresees more share repurchases as well as mergers and acquisitions.
Expe
ct a Choppy Stock Market Performance
Lending and growth opportunities for financials may be constrained, though, by the slow pace of the U.S. economic recovery. And stock performance may not reflect the brighter fundamentals.
John Scherr, founder and president of earnings watchdog site WhisperNumber.com, said Friday after the JPMorgan results were posted that he expects a mixed performance from banks for the Q4 earnings season. Even JPMorgan's strong results may see short-term negative price movement, Scherr said.
"The stock tended to see negative price movement in each of the last five earnings reports," he said. "JPM has topped the whisper number by an average of 14 cents in the past four quarters. To us that simply means the company is doing a poor job of managing earnings expectations. JPM have now set themselves up to have to beat the expectations by at least 14 cents before the earnings can be considered a true positive surprise."
