Reassuring Start To Q3 Earnings Season

 | Oct 14, 2016 04:43AM ET

The big banks have given us a reassuring start to the Q3 reporting cycle. If this trend continues next week when a broad and representative cross section of corporate America is on deck to come out with quarterly results, then we will have a tangible reason to get optimistic about the overall earnings picture.

J.P. Morgan (WFC ) report was solid as well, but the issue with them is more about political scrutiny, negative headlines and potential litigation and not earnings, at least no at this stage.

It will be interesting if this positive start from the major banks will continue with the other banks who are reporting this week. Bank earnings continue to be shackled by low interest rates, which have been weighing on the group’s margins. The interest rates question is of course very complicated, as it not only reflects the market’s evolving Fed view, but also the widespread incidence of negative yields in many other developed markets. Current consensus expectations for the group for the coming quarters and beyond reflect a notable improvement in this situation, particularly with respect to margins, as the chart below of annual Finance sector margins, shows.