The Dow Jones Industrial Average just barely closed above the 18,000 level on Friday — a threshold it has been struggling with since late 2014.
Amid economic and earnings headwinds, whether or not an upside breakout materializes will depend in large part on the Federal Reserve policy announcement on Wednesday. Currently, the Fed is maintaining a two-quarter-point rate hike forecast for 2016, whereas the futures market only expects a single rate hike around October.
The fate of the market uptrend depends on who is right. And the canary in the goldmine, so to speak, will be the behavior of big bank stocks that have enjoyed a lift in recent weeks thanks to some better-than-expected earnings results. Should these market leaders turn lower, it’ll be a sign investors are bracing for a more aggressive Fed rate hike schedule.
Here are three charts to keep an eye on: Bank of America Corp (NYSE:BAC), Citigroup Inc (NYSE:C) and JPMorgan Chase & Co. (NYSE:JPM).
Bank of America Corp (BAC)
BAC shares are charging toward their 200-day moving average — a level they lost at the start of the year thanks to a Q1 earnings result that was in line with expectations despite an 8% drop in revenues vs. last year. Trading revenues were also soft.
Yet investors seem to be pleased that drags from low global interest rates, market volatility and low energy prices didn’t result in a bigger hit to profitability.
Citigroup Inc (C)
C shares are also making a run at their 200-day moving average, a level that was lost back in December. Citigroup reported above-consensus earnings of $1.10 per share on $17.6 billion in revenues, which was down 11.1% from last year but still managed to beat forecasts. Net income was down 27.1% from last year.
Analysts at Barclays called out better trends in loan and deposit growth, expense control and more as reasons to justify a higher valuation for the stock.
JPMorgan Chase & Co. (JPM)
JPM shares are more advanced than the other two here, already pushing back to their November-December trading range and moving back over their 200-day moving average. The company reported a Q1 earnings-and-revenue beat, despite a 3.7% decline on the top line vs. last year.
Yet investors were encouraged by an increase in return on tangible equity to 12% from 11% in Q4 2015 and a 17% increase in average core loans from last year.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
