Summary:

• Goldman Sachs and BoFA both report Q4 losses after tax expenses
• Share prices relatively unaffected; similar to Citigroup yesterday
• US500 looking to recover after sharp pullback yesterday

Earnings season in the US is getting into full swing now with both Goldman Sachs and Bank of America (BoFA) reporting their latest trading update ahead of the opening bell. In a similar theme to that seen with Citigroup yesterday both firms have reported losses due to the imminent application of the new tax framework. Speaking specifically these banks have large tax assets that have fallen in value due to the forthcoming drop in the US tax rate. 

 Goldman Sachs reported an adjusted EPS of -$5.51 (+$5.68 excluding the tax charge) on revenues of $7.83B compared to $7.61B expected. The reaction to this has been slightly negative in the market with shares called to open more than 1% lower. Goldman Sachs (GD.US on xStation) gapped higher yesterday but ended lower after failing to take out all-time highs of 262. Price is expected to close the gap higher from Tuesday on the open this afternoon. 

 Goldman Sachs gapped higher yesterday but failed to take out the high at 262. Shares are called to open lower today after the latest trading update. Source: xStation

Bank of America also saw it earnings take a hit due to the new federal tax law, but despite this the firm still managed to post a profit. Excluding the tax charge BoFA earned $5.3B (EPS $0.47 vs $0.44 exp) but with the cost of $2.9B included it is more than halved. Revenues for the period rose by 2% to $20.69B. There was also a strong gap higher for BofA (BAC.US on xStation) yesterday after shares were closed for the long weekend. Price jumped to a new high for this rally of 31.78 but then fell back to end the day lower. Shares are expected to resume this afternoon around last night’s closing level of 31.25. 

 Bank of America hit its highest level in over 9 years yesterday but the market fell back. Shares are expected to resume around yesterday’s closing level with little reaction seen in the pre-market to the earnings release. Source: xStation

 The price action during Tuesday’s session for both these banks was similar to that of the US500, with the market surging higher shortly after the Wall Street open before reversing and ending lower on the day. The market made a fresh all-time high within an hour of the opening bell at 2809 but there was then a sharp drop with the market falling almost 40 points before recovering into the close. The gap higher on Monday was at 2786 was swiftly closed and this could be the first level to look for possible support but if this breaks then 2776 and the daily low of 2770 could be retested. As for resistance, the high of 2809 is an obvious place to look.

The US500 made a bright start yesterday but a sharp sell-off of around 40 points saw the market close lower. Source: xStation