Corporate earnings show that Wall Street is turning cautious while Main Street gets bullish as consumers ditch goods for experiences, Bank of America says

• First-quarter earnings results have so far revealed that Wall Street is turning bearish as Main Street gets bullish.
• Banks are cautious and have added to their loan loss reserves, while airlines see strong demand from consumers.
• "We see signs of goods demand cooling, particularly in big ticket items, while services benefit from strong pent-up demand," Bank of America said.

First-quarter earnings results have so far revealed that Wall Street is turning bearish even as Main Street gets bullish, Bank of America said in a Monday note.

The bank pointed to earnings results from Wall Street firms like JPMorgan, Goldman Sachs, and Citigroup, which included a build up in loan loss reserves and warnings about the uncertain macro environment.

"Banks baked in the downside risks from the heightened macro uncertainties in their credit reserves, although it was more preventative as credit trends still remain benign," Bank of America's Savita Subramanian explained, adding that bank stock buybacks are expected to slow.

At the same time, earnings results from Delta Air Lines and Fastenal were strong as consumers ditch goods in favor of services. "We see signs of goods demand cooling, particularly in big ticket items, while services benefit from strong pent-up demand," Subramanian said.

So far, first-quarter earnings results have been better than anticipated, with 10% of the S&P 500 having already reported. About 53% of those companies have beat both sales and income estimates, and analysts expect overall S&P 500 EPS to growth 5% in the first-quarter.

"Whereas Wall Street was more cautious amid uncertainty, Main Street exposed companies sounded upbeat (although still early). Delta Air Lines issued 'impressive' second-quarter guidance, supported by a strong recovery in both corporate and leisure travel for the first time since COVID," Subramanian said.

And despite ongoing concerns about the health of the consumer, Bank of America's airlines analyst sees strong pent-up travel demand to last through the summer peak, according to the note.

"And it wasn't just the service sector that is seeing strength: Fastenal (industrials) also beat on both sales and EPS, which increased demand and pricing outpacing cost inflation," Subramanian said.

While service demand remains robust, Subramanian is seeing signs of cracks forming in the purchasing of some big ticket items, including cars and homes, as higher interest rates hurt affordability.

"We expect the shift from goods to services to accelerate this year, especially as big ticket item demand slows, which is a headwind for S&P 500 EPS that is more geared towards goods (50% goods) than the overall US economy (20% goods)," Subramanian said.