This was the first full week of earnings season and as usual the schedule was heavily populated by banks. The commentary was definitely more subdued than I expected it to be. Optimism has ticked lower from the start of the year. CEOs are citing a lack of progress in Washington for the downtick. Still, optimism overall is higher than it had been and there’s a good chance that pent up demand will take over regardless of what happens with tax reform in Washington.

The Macro Outlook:

Despite optimism, growth hasn’t yet materialized

“Loan growth, despite the optimism for change in a more business-friendly administration, has yet to materialize in a meaningful way…The net result is that our outlook for loan growth for the full year of 2017 is a little lower than it was in January.” —M&T Bank CFO Darren King (Regional Bank)

Companies are more skeptical than they were

“The first quarter was an interesting one, as we entered it with a lot of optimism about what the new administration might do to further improve the economy. As the quarter continued, some of this optimism has slowed and now companies are more cautious or skeptical about what shape some of the programs, including tax reform, infrastructure projects and ACA reform will take and when they might actually take effect, if at all.” —Brown and Brown CEO Powell Brown (Insurance Broker)

Expectations for policy changes have become more muted

“anything on the corporate tax rate front is positive to Morgan Stanley, and it appears likely whether it’s this year ultimately or next year, there will be movement on that rate. I suspect it will be a little more modest and some of the numbers that have been thrown out. But nonetheless, anything sub 30%, appears probable would be very positive.” —Morgan Stanley CEO James Gorman (Investment Bank)

The yield curve is falling along with expectations

“So, because that stimulus hasn’t occurred, it still may, but certainly is lower probability today than it was in November and December. They were back down in lower 10-year rates, lower mortgage rates than we were there for a while. And now we have to ask ourselves again, are we going to be lower for a while, lower for longer or are we still awaiting for a shoe to drop in for there to be a big backup in rates?” —Wells Fargo CFO John Shrewsberry (Bank)

Businesses are awaiting clarity from policymakers

“During the first quarter of 2017, commercial loan growth was sluggish across the industry. Our large corporate customers tell us that they are optimistic about the future, but are awaiting more clarity regarding potential changes in tax and regulatory reform, infrastructure spend and trade policies.” —US Bancorp CEO Andy Cecere (Regional Bank)

“we haven’t seen the pipeline deteriorate materially, but we’ve seen people not following through to date and accepting those loans and moving forward. In general, when we talk to our RMs and talk to the customers, I think the general sentiment is one of optimism, but they’re in kind of a wait-and-see mode. And they’re just waiting, I think, for more certainty about which direction the administration is going to go” —M&T Bank CFO Darren King (Regional Bank)

Congress is waiting for guidance from the administration

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