Over the next few weeks, the second-quarter earnings season will pick up steam and, according to pundits, the results are not expected to be rosy. Earnings of S&P 500 companies are predicted to decline in the second quarter, with concerns about the third and fourth quarters.
Traditionally, the first major company to report every quarter is conglomerate and bellwether stock, General Electric Company (NYSE/GE), which reported on Friday. The company managed to meet earnings estimates, which was encouraging after a shortfall in the first quarter. A positive was revenues of $46.89 billion, which was above the average Wall Street estimate of $45.31 billion as well as the high estimate of $46.19 billion. Investors may not be that pleased, as they wanted to see stronger earnings and positive comments going forward.
What was interesting was GE’s decision to divest itself of its Japanese consumer finance business for $5.4 billion. The unit offers personal loans, along with credit cards and mortgages. The move tells us something about the condition of the financial services market.
Continuing with the financial market, Citigroup, Inc. (NYSE/C), which is struggling with the credit crisis, may need more liquidity for potential additional write-downs. Citigroup reported that it would divest itself of Citibank Germany, its German retail banking operation, for $7.7 billion in cash. The sale appears to be at a good time, as it will generate a post-tax gain of $4.0 billion for Citibank, which will help with more potential issues with the credit crisis.
Merrill Lynch & Co., Inc. (NYSE/MER) lost ground after Fitch Ratings said that a potential credit downgrade may be in the works.
The reality is that earnings season will be volatile times for the market. Financial stocks will be carefully monitored and this is an area that we continue to avoid. For this week, watch for State Street Corporation (NYSE/STT), U.S. Bancorp (NYSE/USB), Wells Fargo & Company (NYSE/WFC), JPMorgan Chase & Co. (NYSE/JPM), Merrill Lynch, TD AMERITRADE Holding Corporation (NASDAQ/AMTD), and Citigroup.