Its not all that rosy in the banking sector

Yes its not all that rosy.

No doubt every major bank that reported Q2 results had reason to be proud of itself as the earnings easily beat estimates; there's little reason to be upbeat about future earnings.

This is especially so for the banks which has big consumer businesses like Citi and BoA. Firstly, Citi and BoA avoided losses in Q2 only because respectively, they sold Smith Barney brokerage and China Construction Bank stakes profitably.

They took more credit losses in the last quarter for the consumer businesses and expects this part of their business model to remain weak for the forseeable future. And that means, improving next few quarters' earnings will be challenging.

FT says Citi and BoA suffered USD 12.4 bn and USD 16.4 bn in credit costs in the last quarter.The economy must pick up fast for them to continue to do well but I think there's more de-leveraging to be done by the US consumer, the recession will be around for some time.

In contrast to investment banks like Goldman and JP Morgan, whose capital markets businesses are their earnings lynchpins, have lesser consumer related baggage.

So that doesn't sound too upbeat for stocks to me. Afterall, the S&P500 is made up of a larger group of firms that has little to do with the investment banking giants like GS and JPM and if earnings don't look too good, the euphoria will not last long.

Stocks will need more other reasons other than the bank-led surge to move another leg higher.In the following days, regional banks will too, announce Q2 earnings and these banks being more exposed to the American consumer would likely not do so well.

But the good news is... Initial Jobless Claims on Thur point to a firming to some extent of the labour market. The claims fell at a record pace as sackings in the auto and manufacturing industries have already been carried out earlier in the year.

Although Continuing Claims, an estimate of still unemployed people is at a record high, Non Farm Payrolls numbers should improve going forward.

Till then, the market is still focused on the rest of the earnings season.