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This is an abridged transcript of the podcast.
Our top story so far in today’s session:
Banks kicked off earnings season in earnest today, with results mostly topping expectations – although Citi was a notable miss.
Disappointing results for Citi (C) in investment banking and market revenue more than offset strong results in Treasury and Trade Solutions and Securities Services. Adjusted EPS of $1.37 missed by just a penny, though.
JPMorgan Chase (JPM) rose after earnings topped the Wall Street consensus and the biggest U.S. bank increased its guidance for year net interest income. While most of its businesses contributed to Q2 earnings growth, Consumer & Community Banking and Commercial Banking units turned in particularly strong results.
And Wells Fargo (WFC) posted stronger-than-expected earnings and revenue – even as its provision for credit losses increased to brace for a softening economy. CEO Charlie Scharf said the banks’ “strong net interest income continued to benefit from higher interest rates,” adding that Wells Fargo remains focused on controlling expenses.”
But perhaps on a sell-the-news reaction, the S&P Bank ETF (KBE) is down more than 1%.
Now a look at today’s trading. Stocks are higher, with growth leading despite a bounce back in rates. The Nasdaq (COMP.IND) and Dow (DJI) were up more than half a percent. The S&P (SP500) gains were more muted.
Treasury yields are popping following the Michigan consumer sentiment figures that showed inflation fears still firmly rooted. The 2-year yield (US2Y) is up more than 10 basis points, back above 4.70%. The 10-year (US10Y) is back above 3.80%.
The Michigan sentiment index rose to 72.6 in July, topping the 65.5 expected and up from 64.4 in June. That’s the highest level since September 2021. A slowdown in inflation and stability in the labor market helped. But five-year inflation expectations ticked back up to 3.1% from 3% the month before.
Meanwhile, traders are taking profits in crude oil (CL1:COM) after a strong week. It’s off more than 1.5%.
Among stocks to watch, J.P. Morgan downgraded AT&T (T), citing worries over its wireless and broadband segments. Philip Cusick cut the stock to Neutral from Overweight and lowered his price target to $17 from $22.
He says AT&T “is facing marginally more pressure in Mobility (from Verizon, T-Mobile, and cable) and Consumer Wireline … as well as ongoing pressures in Business Wireline.”
J.P. Morgan also downgraded Alcoa (AA) to Neutral from Overweight with a $36 price target, down from $54. Analyst Bill Peterson cited weaker near-term aluminum fundamentals, including planned capacity restarts in China, while primary demand remains subdued. He is also cautious over the timing of permitting extensions for Alcoa’s mining operations in Western Australia.
And Citi says is sees “99 billion reasons to stay long” semiconductor equipment stocks after attending the SEMICON West conference. Next year should see an expected recovery in chip equipment spending. Comments from Tokyo Electronic, whom analyst Atif Malik met at the conference, suggest that wafer equipment spending will be $99 billion in 2024, while Citi is estimating $88 billion, aided by mature logic spending across the U.S., Europe and China.
In other news of note, China’s central bank has signaled that more support for the economy could be on the way. Financial regulators are looking to woo the world’s biggest investors at a time when its economy has been hit by weakness and geopolitical tensions.
Officials at the People’s Bank of China hinted at adjustments to the reserve requirement ratio and medium-term lending facility to ensure sufficient liquidity, as well as easing of property controls, Bloomberg reports.
But the PBOC didn’t signal any rate cuts.
Xing Zhaopeng, senior China strategist at ANZ, says the overall tone is “very dovish and “clarifies that monetary policy support will be increased.”
Now for income investors, let’s take a look at Seeking Alpha’s weekly Dividend Roundup.
Among those with dividend increases this past week were Gladstone Capital (GLAD) and Duke Energy (DUK). Walgreens (WAB) and MetLife (MET) were a couple of the names that declared dividends.
Looking to next week, Caterpillar (CAT) and Credit Suisse (CIK) are among the stocks going ex-dividend next week.
In the Wall Street Research Corner –
With earnings season kicking off we’re going to take a look at how Seeking Alpha’s Quant Ratings see the sectors.
The QR system gives an overall score from 0 to 5, using a quant-based approach on measures like valuation, earnings growth and recent stock performance.
At the top, Communication Services (XLC) has an average core of 3.65, the highest among S&P 500 sectors. This is followed by Industrials (XLI) at 3.45 and Energy (XLE) at 3.34.
Sectors with the lowest average score are Consumer Staples (XLP) with 3.06, followed by Real Estate (XLRE) with a score of 3.14 and Materials (XLB) at 3.15. In total, S&P 500 companies have an average score of 3.27.
Goldman says companies “will be able to meet the low bar set by consensus” this season, while “negative EPS revisions for 2023 and 2024 appear to have bottomed and revision sentiment has improved.”
Berenberg notes that “US equities are stretched, expensive and narrow after a strong rally in the first half of the year. US gains have stretched the ratio of S&P 500 market cap to US GDP towards 170% against 150% during (thee) 2000 peak and (the) 200% recent post-COVID-19 peak.”
Morgan Stanley says that while “earnings revisions breadth has improved this year, calendar EPS forecasts continue to fall.”
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