The main story from US earnings season yesterday was the volatility we saw in American Express shares as traders reacted to its Q1 earnings report. The company posted Q1 EPS of $2.40, down against the $2.65 the market was looking for and down sharply against the $2.73 posted a year earlier. Revenues were better, however, at $14.281 billion vs $13.981 billion forecast, marking record highs for the company. Looking at the same period a year prior, revenues were seen more than 12% higher.

Bad Loan Provisions Cause Concern

Looking at the breakdown of the earnings release, AmEx attributed record revenues to a heavy jump in card member spending with 16% total growth. This was driven by a huge 75% leap in net interest income and an 18% jump in non-interest income. Overall, discretionary and corporate spending increases were seen driving revenues higher. However, there were some aspects of the release which concerned investors, chief among these was the heavy increase in bad loan provisions.

AmEx noted that it had built up its credit loss provision to $1.1 billion in Q1, up from just $33 million in Q1 2022. This was in line with a growing trend of increased write-offs. Total write offs in Q1 hit $735 million, up from $287 million a year earlier. This is certainly an area that investors will be monitoring closely in coming quarters as US recession risks grow. Despite the initial fall, however, AmEx shares bounced back firmly over the session suggesting that shareholders were bolstered by increased spending growth.

Technical Views

American Express

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The move lower from highs around 180 has seen the market trading back down to test the bull channel lows and structural support around 154.71. With this area holding for now, the focus is on a continuation higher and a break back above the 166.22 level. However, should we break the channel lows, 143.60 will be the next support to watch. 

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