Best Stocks, Crypto, and ETFs to Watch – Bank of America, Netflix, Ethereum in Focus

Bank of America Corp. (BAC) sold off in sympathy with JPMorgan Chase and Co. (JPM) in Friday’s session, reacting to the Dow component’s surprisingly weak quarterly revenue. A second day of lower prices on Tuesday could set up a strong buy-the-news reaction when BAC reports in Wednesday’s pre-market session. The stock has the highest relative strength in the elite money center group and is nearing a critical test at 2006’s all-time high in the mid-50s.

Netflix Inc. (NFLX) has been sold aggressively in recent weeks, dropping 27% and failing a breakout above resistance at 600. The streaming giant bounced into Friday’s close after announcing an increase in monthly subscription prices. However, the hike is a two-edged sword because subscriber churn (new subs plus cancellations) could escalate, canceling out revenue gains. The company is likely to comment on the decision when it reports Q4 2021 earnings after Thursday’s closing bell.

SPDR S&P Retail ETF (XRT) fell to a 10-month low on Friday after December Retail Sales ex-auto fell 2.3%, compared to expectations for a 0.2% increase. The shortfall, during the critical holiday sales season, suggests that inflation is impacting consumer buying behavior. Even so, retailers reported strong October and November results, stoked by fears that supply chain disruptions could generate empty shelves. Despite that early buying pressure, smart traders will be watching the fund for a sell signal that offers timely short sale profits.

Ethereum (ETH) could be bottoming out after a two-month slide that relinquished 60% of the cryptocurrency’s value. ETH broke out above May resistance at 4,400 in November, failing the breakout just three weeks later. The subsequent decline reached support at the 50-week moving average about one week ago, with that level narrowly aligned at the .618 Fibonacci rally retracement level. Weekly Stochastics remains in a bearish cycle but is nearing the oversold level, with a bullish crossover set to issue an intermediate buying signal.

Dividend paying stocks continue to outperform growth and value plays in 2022 as investors look for ways to protect portfolios from rising inflation. Dow component Proctor & Gamble Co. (PG) could benefit from this rotation when it reports Q2 2022 earnings on Wednesday. The company is expected to earn $1.65 per-share on $20.34 billion in revenue during the quarter, with that profit perfectly matching results during the same quarter last year. PG, which posted an all-time high on Jan. 6, pays a respectable 2.18% annual dividend yield.

Catch up on the latest price action with our new ETF performance breakdown.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Wall Street Week Ahead Earnings: Goldman Sachs, Procter & Gamble, United Airlines, and Netflix in focus

The following is a list of earnings slated for release January 17-21, along with a few previews. A number of big companies will report earnings in the week ahead, including Goldman Sachs and Bank of America, Procter & Gamble, Netflix, and a number of transportation companies. Investors will carefully monitor the latest news on the rapidly spreading Omicron coronavirus variant to see how it affects earnings in 2022.

Earnings Calendar For The Week Of January 17

Monday (January 17)

No major earnings are scheduled for release. The stock market in the U.S. will be closed in observance of Martin Luther King, Jr. Day.

Tuesday (January 18)

IN THE SPOTLIGHT: GOLDMAN SACHS

The New York-based leading global investment bank Goldman Sachs is expected to report its fourth-quarter earnings of $11.89 per share, which represents a year-over-year decline of about 2% from $12.08 per share seen in the same period a year ago.

The world’s leading investment manager would see a decline in revenue of nearly 1% to $11.65 billion from a year ago. It is worth noting that in the last two years, Goldman Sachs has surpassed market consensus expectations for profit and revenue most of the time.

“We expect Goldman Sachs to report mixed results, with revenues outperforming the consensus estimates and earnings missing the expected figure. The investment bank reported better than expected results in the last quarter, with the top-line increasing 26% y-o-y. This was driven by significant growth in the investment banking business, followed by higher global markets and consumer & wealth management revenues,” noted analysts at TREFIS.

“While investment banking grew on the back of growth in mergers &acquisitions (M&A) and equity underwriting deal volumes, global markets benefited from higher equity trading revenues. Similarly, the consumer & wealth management segment gained from an increase in outstanding loan balances. That said, the top-line was partially offset by negative growth in the asset management division, primarily due to lower equity investment revenues. We expect the same trend to continue in the fourth quarter. We estimate Goldman Sachs’ valuation to be around $447 per share which is 14% above the current market price.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 18

TICKER COMPANY EPS FORECAST
BAC Bank of America $0.78
SCHW Charles Schwab $0.83
CNXC Concentrix $2.54
HWC Hancock Whitney $1.33
IBKR Interactive Brokers $0.74
JBHT J.B. Hunt Transport Services $2.0
MBWM Mercantile Bank $0.85
ONB Old National Bancorp $0.38
PNFP Pinnacle Financial Partners $1.56
PNC PNC Financial Services $3.62
PRGS Progress Software $0.62
SBNY Signature Bank $3.92
TFC Truist Financial $1.27
UCBI United Community Banks $0.63

 

Wednesday (January 19)

IN THE SPOTLIGHT: PROCTER & GAMBLE, UNITED AIRLINES

PROCTER & GAMBLE: The world’s largest maker of consumer-packaged goods, is expected to report its fiscal second-quarter earnings of $1.66 per share, which represents year-on-year growth of just over 1% from $1.64 per share seen in the same period a year ago.

The Cincinnati, Ohio-based consumer goods corporation would post revenue growth of over 3% to $20.4 billion from a year ago. It is worth noting that the company has consistently beaten consensus earnings estimates in the last two years, at least.

“We believe strategy changes can sustain Procter & Gamble (PG) LT topline growth in the 4% range. In the US, a strong breadth of performance and share gains give us confidence that market share momentum is sustainable and supports LT topline growth above HPC peers. While near-term pressures from commodity/freight inflation will impact margins, we believe PG has stronger pricing power than peers, particularly with share gains,” noted Dara Mohsenian, equity analyst at Morgan Stanley.

PG trades at ~22.5x CY22e EPS, an HSD% discount to HPC peers CLX, CL and CHD, and looks compelling given our call for higher LT PG growth.”

UNITED AIRLINES: The major U.S. airline company is expected to report a loss for the eight-consecutive time of $-2.12 in the holiday quarter as the aviation service provider continues to be negatively impacted by the ongoing COVID-19 pandemic and travel restrictions.

However, that would represent a year-over-year improvement of about 70% from -$7.0 per share seen in the same period a year ago. The Chicago, Illinois-based airlines would post revenue growth of over 130% to $7.94 billion.

“Despite some headwinds around staffing issues, we expect United Airlines (UAL) to guide to a continued sequential improvement with capacity guided to be down in the 17-18% range in Q1, which incorporates domestic capacity down in the 1% range, while international capacity remains down 27%,” noted Sheila Kahyaoglu, equity analyst at Jefferies.

“Remaining in a Net Loss Position into Q1. We expect a continued sequential decline in CASM-ex to 11.63¢, which reflect a 9% increase vs. 2019 levels, which compares to the 13% increase we expect in Q4. Nonetheless, UAL will remain in a net loss position in Q1, before turning positive in Q2.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 19

TICKER COMPANY EPS FORECAST
AA Alcoa $2.5
ASML ASML Holding $4.3
CFG Citizens Financial Group $1.16
CMA Comerica $1.6
DFS Discover Financial Services $3.48
FAST Fastenal $0.36
FUL H.B. Fuller $1.06
KMI Kinder Morgan $0.27
MS Morgan Stanley $1.83
PACW PacWest Bancorp $1.06
PG Procter & Gamble $1.66
STT State Street $1.93
USB U.S. Bancorp $1.13
UAL United Airlines $-2.12
WTFC Wintrust Financial $1.56

 

Thursday (January 20)

IN THE SPOTLIGHT: NETFLIX

The California-based global internet entertainment service company NetFlix is expected to report its fourth-quarter earnings of $0.82 per share, which represents a year-over-year decline of over 30% from $1.19 per share seen in the same period a year ago.

However, the streaming video pioneer would post revenue growth of over 16% to $7.71 billion. It is worth noting that the company has beaten earnings per share (EPS) estimates just thrice in the last two years.

“We believe share performance is highly dependent on increasing global membership scale. Proven success in the US and initial international markets provides a roadmap to success in emerging markets, and scale should allow Netflix (NFLX) to leverage content investments and drive margins,” noted Benjamin Swinburne, equity analyst at Morgan Stanley.

“Higher global broadband penetration should increase the Netflix (NFLX) addressable market, driving member growth and providing further opportunity given NFLX’s global presence. Longer-term, we see the ability to drive ARPU growth, particularly given increased original programming traction.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 20

TICKER COMPANY EPS FORECAST
AAL American Airlines $-1.72
CSX CSX $0.42
FITB Fifth Third $0.91
ISRG Intuitive Surgical $1.01
KEY KeyCorp $0.56
MTB M&T Bank $3.24
NTRS Northern Trust $1.82
OZK Bank OZK $0.98
PPBI Pacific Premier Bancorp $0.85
PPG PPG Industries $1.2
RF Regions Financial $0.49
SASR Sandy Spring Bancorp $1.1
SIVB SVB Financial $6.29
TRV Travelers $3.77
UNP Union Pacific $2.66
WBS Webster Financial $1.11

 

Friday (January 21)

TICKER COMPANY EPS FORECAST
ALLY Ally Financial $2.0
FHB First Hawaiian $0.47
HBAN Huntington Bancshares $0.37
INFO IHS Markit $0.71
SLB Schlumberger $0.39

 

SPXU: Harnessing Volatility in The S&P 500, to Short the Market With a Three Times Inverse ETF

Fed Chairman’s Powell reassuring statement on Tuesday and inflation figures for 2021 being in line with estimates on Wednesday seem to have appeased bearish sentiments resulting in the S&P 500 rising.

However, there are many different elements that are likely to impact stocks, such as the continuation of the economic recovery, corporate earnings, inflation, supply chain concerns as well as the likelihood of the Omicron variant stressing hospital services. These should result in continued volatility episodes as seen in the S&P 500 ETF Trust ETF (SPY) which tracks the S&P 500 index.

https://static.seekingalpha.com/uploads/2022/1/12/49663886-16420000045920553.png

Source: fxempire.com

In such conditions, people are normally risk-averse, or avoid trading and prefer to wait for some relative calm before looking at stocks. This is the case for most of us, but, there is another option which is to trade the volatility using a tool like the ProShares UltraPro Short S&P500 (SPXU) which inversely tracks S&P 500 at -3 times its daily performance.

This calls for enticing gains as a 5% fall in the SPY can “theoretically” bring you 15% gains, but my own experience has taught me that just putting money in the SPXU at the first sign of a market downturn is unproductive. Instead, I use the chart below which shows the performance of the ProShares ETF from January 2020 to date. It includes the spring 2020 crash subsequent to the World Health Organization declaring Covid to be a pandemic.

Investors will notice that I have calculated the amplitude obtained by subtracting SPXU’s daily low from the daily high. Then I converted the resulting value as a percentage that more vividly represents the volatility induced in the ProShares ETF’s through its daily variations.

Here, the March (spring) 2020 crash resulted in gains of over 30% but this was achieved over a period of many weeks. The second noteworthy point is the above-10% differences which, after occurring four times from June 2020 to February 2021, ceased till November last year.

https://static.seekingalpha.com/uploads/2022/1/12/49663886-16420000046728988.png

Source: Chart built by author with data from finance.yahoo.com

Then, came the December 1 market downturn, induced mostly by tech stock aversion, as investors increasingly rotated into value names. To be realistic, this high-volatility episode may prove to be a lone occurrence, but forthcoming events should constitute catalysts for further fluctuations.

First, the earnings season is to be kicked off by banks on Friday this week, and with investors having already placed a lot of expectations on the financial sector as the main beneficiary of the economic recovery and this, thanks to rising interest rates allowing an increase in net interest margins on loans.

This expectation may suffer if megabanks like JPMorgan Chase (JPM) Citigroup (C) and Wells Fargo (WFC) fail to provide any upside surprises in their fourth-quarter earnings reports. Others like the Bank of America (BAC) and Morgan and Stanley (MS) will follow suit. Then, it will be the turn of the big techs with Microsoft (MSFT) on Jan 25 and Apple (APPL) on Jan 29, with analysts being keen to observe for any effects caused by the semiconductor supply crunch.

Second, there is the VIX (Volatility indicator) also referred to as the “index of fear” whose methodology is based on the stocks forming part of the S&P 500. Higher is the VIX, more are volatility risks, and from its high of 35, the indicator is currently at around 18. Given that this figure is far from the VIX’s above- 85 spike during the spring 2020 market crash, a major downside does not seem imminent, but a near-20 value signifies that volatility is persisting.

This signifies that we are in an environment conducive for gains through the SPXU.

Pursing on a cautionary note, I deliberately used the word theoretically above when mentioning possible gains with the SPXU. In this case, a 5% loss in the SPY will not convert into a 15% gain in the SPXU as some percentage points will be lost due to the compounding effect which is a specific feature of highly leveraged ETFs. The net gain will ultimately depend on the degree of fluctuations (volatility) during the trading period. This discrepancy is evident in the one-week performance chart below where a -1.39% loss of the SPY has not translated into a 4.17% (1.39 x 3) gain in the SPXU, but only a 4.15% gain.

https://static.seekingalpha.com/uploads/2022/1/12/49663886-164200000530492.png

Source: Trading View

Considering the long term, due to the leverage, the ProShares fund has delivered a 55% loss and thus, a buy-and-hold strategy is to be avoided, and it is preferable to use this market shorting tool for the least amount of time possible, preferably one day as per the prospectus. This said I have held it for up to five days after gaining some experience selling it at a loss due to the unpredictability of the market. Looking at portfolio protection, some investors also use the SPXU as a hedging tool to gain from a falling S&P 500. Thus, by hedging, these investors hold on to their stocks instead of passively selling them and taking profit in the expectation of an elusive market crash.

Finally, my advice is to wait for the VIX to go above 20 before placing your bet, and this should happen this week or the next. Also, patience, rigorous monitoring and being prepared to exit with a loss are key ingredients for shorting the market.

Disclosure: I/We are long Apple. This is an investment thesis and is intended for informational purposes. Investors are kindly requested to do additional research before investing.

PwC Hong Kong Goes Metaverse

Metaverse was back in the news, with PwC Hong Kong announcing its move into the metaverse. PwC Hong Kong is a subsidiary of Pricewaterhouse Coopers, which has a network of firms in 156 countries, delivering assurance advisory, and tax services. Industries that PwC Hong Kong supports include but are not limited to asset and wealth management, automotive, banking and capital markets, consumer markets, and financial services.

PwC Hong Kong and Sandbox

On Thursday, PwC Hong Kong announced that it had purchased LAND in The Sandbox. The LAND purchase is to allow the construction of a Web 3.0 advisory hub. PwC plans to use the hub to build a new generation of professional services that includes accounting and taxation.

Earlier this year, PwC had raised concerns that venture capital and similar well-funded organizations are hindering opportunities for smaller firms to invest and benefit from the growth of crypto start-ups. PwC is not alone, with a number of other prominent names also seeing VCs as a threat to Web 3.0 development.

PwC Hong Kong is not the only mainstream firm exploring the metaverse. Earlier this month, Bank of America gave its view on the metaverse. According to the BoA, the metaverse presents a massive opportunity for crypto as “we start using cryptocurrencies as currencies”. Another U.S banking giant, Morgan Stanley, also reportedly noted that the metaverse could fundamentally transform human behavior. In particular, metaverse could alter the way people socialize, watch performances, engage with brands, learn, and trade/speculate on digital assts.

Bank of America reportedly announced that the metaverse economy could grow to $800bn by 2024.

PwC Hong Kong did not state the purchase amount. Earlier in the month, however, Tokens.com had announced a $2.4m LAND purchase.

SAND Price Action

On Thursday, SAND rallied by 23.7% to end the day at $6.32. In late November, SAND had struck an ATH $8.49 before easing back. In spite of the pullback, positive metaverse news has supported an eyewatering 17,600% SAND return year-to-date. When considering Bank of America’s estimates for metaverse economic growth, there’s more to come.

SANDBUSD 241221

Avalanche up 12% in 24hours After Praise From Bank of America

A new research report released by Bank of America has praised the smart contract platform Avalanche. The report claimed that the platform’s ability to remain decentralized and secure while scaling makes it a worthy alternative to Ethereum for Defi, gaming, and NFT projects.

Bank of America Praises Avalanche

The bank said that the Avalanche subnet had seen more adoption in recent months, with more than 380 projects now built on the platform. 

In the note published on December 10, the bank further stated that subnet offers faster settlement time and lower costs than other blockchains with a processing speed of 4,500 transactions per second.

Following the prayer from BofA, the price of Avalanche governance token, AVAX, has seen over a 12% increase in value within the past 24 hours. 

The token worth around $91.1 yesterday is now over $104, representing a massive jump in its value. This is still below its ATH of $146.22, but this spike might mean the end of its pullback that started earlier this month. The token has now entered the top 10 Cryptocurrencies by market cap after its recent spike.

Avalanche is Enjoying Wider Adoption

According to Bank of America’s analysts, the growing adoption of Avalanche by DeFi projects is evidenced by the 21% month-on-month rise in total value locked in DeFi protocols on the blockchain, a 6,255% spike since August. Corporations are also using the platform. 

BofA cites Deloitte’s decision to build its Close as You Go (CAYG) disaster-relief platform on Avalanche as a good example of corporations using blockchain technology to lower costs and increase efficiencies.

While Avalanche is suggested as an alternative Ethereum for decentralized applications, it won’t be the first blockchain to get that appellation.

Ethereum itself has witnessed a positive price movement in the past 24 hours. The second most valuable cryptocurrency saw an almost 4% spike in price as it climbed back to $4000 after it dropped about two days ago.

U.S. Banks Beat Profit Estimates on Economic Rebound, Deals Bonanza

JPMorgan Chase & Co, Citigroup, Well Fargo & Co and Bank of America Corp, seen by analysts and economists as bellwethers of the broader economy, reported a combined profit of $28.7 billion for the third quarter, beating analyst estimates.

Much of that was driven by the release of a combined $6 billion of funds the banks had put aside for pandemic loan losses which have not materialized thanks to extraordinary government stimulus, aid programs and loan repayment holidays.

With the national vaccination roll-out allowing Americans to get back to work and resume socializing after 19 months of pandemic-related business closures and travel restrictions, consumer spending has boomed, the banks said.

Loan growth, a key metric closely-watched by analysts, was mixed across Wall Street however. Some lenders are still struggling to grow their loan books as consumers and businesses, flush with cash from government aid programs, continue to pay down loans.

Overall, though, executives were cautiously optimistic that the economy is on a healthy trajectory, despite some risks on the horizon including the latest wave of COVID-19 infections and inflation worries.

“The outlook for the economy is promising,” Wells Fargo Chief Executive Charles Scharf told analysts on Thursday.

“Consumers’ financial condition remains strong with leverage at its lowest level in 45 years and the debt burden below its long-term average. Companies are also strong as well.”

The bank’s customers have cash and are looking to spend he added, noting consumer customers’ median deposit balances remained above pre-pandemic levels.

JPMorgan said combined debit and credit card spend was up 26% year-on-year, while card payment rates stabilized contributing to modest card loan growth. At Bank of America, combined credit and debit card spend was up 21%.

Spending on Citi-branded credit cards in the United States jumped 24% from a year earlier, but with so many customers paying off balances net interest revenue from credit card accounts fell 3%. In a sign that the trend may be turning, net interest revenue on the cards was up 5% from the second quarter.

“On balance, the earnings across the board are really solid,” said Patrick Kaser, portfolio manager at Brandywine Global Investment Management.

“We’re seeing signs of inflection in loan growth [and] optimism about continued economic strength, re-affirmation of the strength of the consumer.”

‘ON FIRE’

Sizzling capital markets over the past six months have also buoyed the country’s largest lenders, with easy monetary conditions driving record-breaking volumes of both mergers and acquisitions (M&A) and initial public offerings, fueling fees.

That helped cushion a decline in fixed income trading this year, which was turbo-charged last year by intense market volatility.

Investment banking giant Morgan Stanley Inc crushed estimates on Thursday, reporting a $3.58 billion profit, up nearly 38% on the year-ago-quarter. That was thanks in large part to a record $1.27 billion in revenues from advising from advising on deals.

“The investment bank, itself, and M&A, is on fire,” James Gorman, the bank’s chief executive, said in an interview with CNBC after the results. “We’ve got global GDP growth, enormous fiscal stimulus, record low interest rates. People want to transact.”

The highlight for JPMorgan’s third quarter was also its Corporate & Investment Bank division, where advisory fees almost tripled due to strong M&A and equity underwriting. All told, that division reported a 6% rise in net revenue.

At Bank of America, revenue from its equities division rose 33% year-on-year, driven by growth in client financing activities and strong trading performance, while Citigroup said revenues for its equity markets business had jumped 40%.

Goldman Sachs, Wall Street’s most prolific dealmaker, will wrap up bank earnings season on Friday.

While capital markets shone, loan growth remained mixed.

JPMorgan said on Wednesday that loans were up 5% across the bank compared with last year, while Citi was broadly flat. Bank of America and Wells Fargo reported declines in loan growth year-on-year.

However, lending appeared to be trending in the right direction at Bank of America, with loan balances up $21 billion compared with the second quarter of this year.

“We’re still seeing people paying off their bills and revolving less,” said Kaser. “So the lack of loan growth is easily explainable.”

(Writing by Michelle Price; reporting by Anirban Sen, Noor Zainab Hussain, Sohini Podder, Manya Saini, Matt Scuffham, David Henry, and Elizabeth Dilts; Editing by Nick Zieminski)

Wall St Ends Up Sharply as Earnings, Economic Data Lift Optimism

The technology sector gave the S&P 500 its biggest boost, with shares of Microsoft Corp and Apple Inc rising.

Shares of Citigroup, Bank of America Corp and Morgan Stanley rose after they topped quarterly earnings estimates. The rebounding economy allowed them to release more cash they had set aside for pandemic losses, while sizzling deals, equity financing and trading added to profits. The S&P bank index jumped.

UnitedHealth Group Inc also climbed after the health insurer reported results and raised its full-year adjusted profit forecast on strength from its Optum unit that manages drug benefits.

Adding to optimism, data showed the number of Americans filing new claims for unemployment benefits last week fell close to a 19-month low, and a separate report showed producer prices eased in September.

“Some of the things that worried the market in September, and even last week, as far as the inflation aspect and higher interest rates and the Delta variant, maybe have lessened,” said Alan Lancz, president, Alan B. Lancz & Associates Inc., an investment advisory firm, based in Toledo, Ohio.

“Not that it’s all over, but on a temporary scale at least, you can make a case for it trending in the right direction.”

According to preliminary data, the S&P 500 gained 74.35 points, or 1.70%, to end at 4,438.15 points, while the Nasdaq Composite gained 248.97 points, or 1.71%, to 14,824.90. The Dow Jones Industrial Average rose 532.21 points, or 1.55%, to 34,910.02.

Gains were broad-based, with all S&P 500 sectors higher.

Shares of Moderna Inc were sharply higher after a panel of expert advisers to the U.S. Food and Drug Administration voted to recommend booster shots of its COVID-19 vaccine for Americans aged 65 and older and those at high risk of severe illness.

Also in earnings, Walgreens Boots Alliance Inc jumped after the drugstore chain reported fourth-quarter revenue and adjusted profit above estimates and forecast growth of 11% to 13% in the long term.

U.S. companies are expected to report strong quarterly profit growth for the third quarter, but investors have been keen to hear what they say about rising costs, labor shortages and supply problems.

For a look at all of today’s economic events, check out our economic calendar.

(Additional reporting by Devik Jain in Bengaluru and Federica Urso in Gdansk; Editing by Arun Koyyur and David Gregorio)

Bank of America at Critical Level After Report

Bank of America Corp. (BAC) is trading higher by 2.5% in Thursday’s pre-market after beating Q3 2021 top and bottom line estimates. The banking giant posted a profit of $0.85 per-share during the quarter, $0.15 higher than expectations, while revenue rose a healthy 11.9% year-over-year to $22.77 billion, more than $1 billion better than consensus. BAC returned $1.7 billion in credit loss reserves to the company coffer, driven by “asset quality improvements”.

Solid Quarter Despite Headwinds

The company benefited from strong deposit growth and the Federal Paycheck Protection Program, even though eligibility ended prior to the start of the reporting quarter. May 31st was the final application date so the income was driven by loan approvals made in prior quarters. The stock fell more than 5% in the three sessions leading into the release, with investors stepping aside due to worries about minimum wage increases and interest rates.

The results improved sentiment after Wolfe Research analyst Steven Chubak downgraded the stock to ‘Hold’ last week, noting “Two primary drivers of our downgrade: 1) Valuation; and 2) Fee Income. For valuation, even when layering in higher rates (+100bps), shares screen rich relative to other rate sensitive peers, notably MS, RJF, LPLA, NTRS. 2) Cons. fee income forecasts also appear too aggressive with the street crediting tax gains from ESG / other investments without reflecting associated fee income drag.”

Wall Street and Technical Outlook

Wall Street consensus is locked into an ‘Overweight’ rating, now based upon 14 ‘Buy’, 2 ‘Overweight’, 9 ‘Hold’, 1 ‘Underweight’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $34 to a Street-high $52 while the stock is set to open Thursday’s session within a few pennies of the median $45 target. This mid-range placement suggests that Bank of America is fairly valued at this time, lowering odds for big upside or downside.

Bank of America has been trading within the price range of the 2008 economic collapse for the last 12 years. The rally that started after the pandemic decline ended less than one point below the .786 Fibonacci selloff retracement level in June 2021, giving way to a sideways pattern, ahead of a September breakout that still hasn’t cleared that harmonic barrier. A buying spike above 45 would mark a highly bullish event in this scenario, opening the door to a test of 2007’s all-time high at 55.08.

For a look at today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Marketmind: No Escaping the Inflation Beast

A look at the day ahead from Dhara Ranasinghe.

Data on Thursday showed China’s factory gate prices grew at their fastest pace on record in September, a day after figures showed another solid increase in U.S. consumer prices.

The take away from markets is that transitory or not, central banks are likely to respond to higher inflation sooner rather than later.

And with minutes from last month’s Federal Reserve meeting showing policymakers’ growing concern about inflation, investors have again brought forward rate-hike expectations.

Fed Funds futures have pulled forward expectations for the first hike from late in 2022 to almost fully price a 25 basis point hike by September.

In addition, money market pricing suggests the Bank of England could move before year-end, the cautious European Central Bank could tighten next year and the overtly dovish Reserve Bank of Australia could raise rates by end-2023 — a trajectory that doesn’t gel with the central bank’s guidance.

Singapore’s central bank on Thursday unexpectedly tightened monetary policy, citing forecasts for higher inflation.

Markets, having priced in higher inflation and a tighter monetary policy outlook, appear to be in a calmer mood in early Europe. Asian shares rallied overnight, European and U.S. stock futures are higher too. U.S. Treasury yields, while a touch higher, are holding below recent multi-month highs.

Still, China property shares fell as investors fretted about a debt crisis in the sector.

The Turkish lira, at record lows versus the dollar, is also in the spotlight after Turkey’s President Tayyip Erdogan dismissed three central bank officials.

Key developments that should provide more direction to markets on Thursday:

– BOJ policymaker rules out stimulus withdrawal even after economy recovers

– Taiwan’s TSMC posts 13.8% rise in Q3 profit on global chip demand surge

– Japan dissolves parliament, setting stage for general election

– Data: Spain harmonized inflation rate(Sept), Canada manufacturing sales (Aug)

– United States: Initial Jobless Claims (Oct), Jobless Claims 4-week Average, PPI (Sept), NY Fed Treasury Purchases 22.5 to 30 years, 4-week and 8-week T-Bill Auction

– Central Banks: Fed’s Bowman, Bostic, Barkin, Bullard, Daly and Harker, ECB’s Elderson, and BoE’s Tenreyro and Mann speak

– Earnings: UnitedHealth, Bank of America, Wells Fargo, Morgan Stanley, Citigroup, US Bancorp, Walgreens Boots Alliance, Fast Retailing, Domino’s Pizza.

(Reporting by Dhara Ranasinghe; Editing by Rachel Armstrong)

 

S&P 500 Rises With Growth Stocks; JPMorgan a Drag

The S&P 500 briefly added to gains following the release of minutes from the September Federal Reserve policy meeting.

U.S. central bankers signaled they could start reducing crisis-era support for the economy in mid-November, though they remained divided over how much of a threat high inflation poses and how soon they may need to raise interest rates, the minutes showed.

Earlier, a Labor Department report showed consumer prices increased solidly in September, further strengthening the case for a Fed interest-rate hike.

Shares of JPMorgan Chase & Co fell and were among the biggest drags on the Dow and S&P 500 even though its third-quarter earnings beat expectations, helped by global dealmaking boom and release of more loan loss reserves.

The day’s corporate results kicked off third-quarter earnings for S&P 500 companies.

“My hope is that as we work out way through earnings season that the forward-looking guidance will be good enough that we’ll close the year higher. But right now the market is in a show-me phase,” said Jim Awad, senior managing director at Clearstead Advisors LLC in New York.

Mega-caps growth names including Amazon.com Inc, Google-parent Alphabet and Microsoft Corp all rose.

According to preliminary data, the S&P 500 gained 14.20 points, or 0.33%, to end at 4,364.85 points, while the Nasdaq Composite gained 105.71 points, or 0.73%, to 14,571.64. The Dow Jones Industrial Average rose 4.35 points, or 0.01%, to 34,382.69.

BlackRock Inc also gained after the world’s largest money manager beat quarterly profit estimates as an improving economy helped boost its assets under management, driving up fee income.

Bank of America, Citigroup, Wells Fargo and Morgan Stanley will report results on Thursday, while Goldman Sachs is due to report on Friday.

Analysts expect corporate America to report strong profit growth in the third quarter but worries have been mounting over how supply chain problems, labor shortages and higher energy prices might affect businesses emerging from the pandemic.

Among other stocks, Apple Inc dipped after a report said the iPhone marker was planning to cut production of its iPhone 13.

For a look at all of today’s economic events, check out our economic calendar.

(Additional reporting by Devik Jain and Bansari Mayur Kamdar in Bengaluru; Editing by Arun Koyyur and David Gregorio)

Price Pressures and Central Banks

Data points beaten by higher bond yields

Many seasoned traders say that the bond market leads all other markets. In that sense, the breakout in yields to new cycle highs tells us that the November Fed taper is a done deal. More than that, we saw yen capitulation at a time when there is still some uncertainty over the growth and risk outlook, which would ordinarily lead investors to seek safe havens.

Ahead of the US CPI and Fed minutes tomorrow, USD/JPY broke to new cycle highs yesterday and the highest level since December 2018 on the back of rising bond yields. The move looks decisive (on the weekly chart especially) with the next area of resistance around 114-114.50 The latter zone served as resistance on numerous occasions back in 2017 and 2018. The major is overbought on the daily RSI which means we should expect a pullback in some fashion soon. Support sits around 112.80.

Solid UK Jobs Data keeps alive BoE rate hike expectations

Money markets went into overdrive yesterday, and none more so than the sterling market. A 25 basis point hike by the Bank of England is now fully priced in for December this year, with some 8 basis points for next month. Notably, this morning’s UK employment figures did not spike higher as many feared, despite the end of the furlough scheme. And August average wage growth came in on the high side.

This means there is not much to push back on this fairly aggressive rate hike pricing. The high inflation story contrasts with multiple economic tailwinds (fuel, energy and food shortages, Brexit) that are expected to hit the UK in the coming months. The rise in GBP/USD stalled yesterday at 1.3673 and we are back into the range trading around 1.36. The July low at 1.3571 offers the next line of support while the 50-day moving average looms above at 1.3725.

US Q3 Earnings Season is upon us

We also have the small matter of the third quarter earnings season to digest too! In the current landscape of elevated equity valuations and record high profit margins, it may pay to be on our guard for a bout of upcoming profit warnings. These results will be all about increasing input costs and how they are driving margin pressures. We might also see more evidence of how physical and digital companies’ performance is diverging.

Banks are first up with results this week form JP Morgan Chase giving us a good handle of the broader (investment) banking environment, while Bank of America will show us a picture of domestic loan demand. Key will be talk on inflation and the outlook for interest rates, and how customers are being impacted.

By Lukman Otunuga Senior Research Analyst

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

SP500 Is On The Edge – What’s Next?

It’s likely that legislation to fund President Biden’s $4 trillion worth of infrastructure and other spending plans will be moving through Congress around the same time. Those bills are expected to include tax increases for businesses and on capital gains. All of that combined could set markets up for a rocky December but for now, investors are turning attention back to economic data and upcoming earnings.

What to watch next week?

Turning to next week, Q3 earnings “unofficially” kick off Wednesday with earnings from big Wall Street banks, including Bank of America, Goldman Sacks, JP Morgan Chase, and Wells Fargo. Other earnings worth noting next week include Fastenal on Tuesday; BlackRock, Delta, and The Progressive Corp. on Wednesday; Alcoa, Citigroup, Dominos Pizza, Morgan Stanley, United Health Group, U.S. Bancorp, and Walgreens on Thursday; and J.B. Hunt, PNC Financial, and Prologis on Friday.

In economic data next week, it’s a packed calendar that will cover all the economic bases from jobs to inflation. Highlights include the Job Openings and Labor Turnover Survey on Tuesday; the Consumer Price Index on Wednesday; the Producer Price Index on Thursday; and Retail Sales, Empire State Manufacturing, Import/Export Prices; Business Inventories, and the preliminary read on October Consumer Sentiment.

Technical analysis

ES ##-## (Daily) 2021_10_10 (6_59_58 PM)

As we expected SP500 bounced back up last week. The market is reaching a critical point – MA50 retest. There is strong accumulation in this market, while the price holds under daily MA50. In these mixed conditions, its better to stay on the sidelines till the market finds a new direction.

If accumulation remains and the price starts building the base above daily MA50, the market will attempt to renew an uptrend. On the other hand, if futures lose accumulation and price gets rejected at MA50, SP500 might continue to drift to the downside. The cycles forecast bottom in October. But we need a price action confirmation.

Earnings Week Ahead: Most Big U.S. Banks, Delta Air Lines, UnitedHealth and Domino’s in Focus

Earnings Calendar For The Week Of October 11

Monday (October 11)

No major earnings are scheduled for release.

Tuesday (October 12)

Ticker Company EPS Forecast
TRYG Tryg KRW1.71
FAST Fastenal $0.42
PNFP Pinnacle Financial Partners $1.55

Wednesday (October 13)

IN THE SPOTLIGHT: BLACKROCK, DELTA AIR LINES

BLACKROCK: The world’s largest asset manager is expected to report its third-quarter earnings of $9.70 per share on Wednesday, which represents year-on-year growth of over 5% from $9.22 per share seen in the same period a year ago.

The New York-based multinational investment management corporation would post revenue growth of over 13% to around $5.0 billion. In the last four consecutive quarters, on average, the investment manager has delivered an earnings surprise of over 9%.

“We believe BlackRock (BLK) is best positioned on the asset mgmt barbell given leading iShares ETF platform, multi-asset & alts combined with technology/Aladdin offerings that should drive ~13% EPS CAGR (2020-23e) via ~6% avg LT organic growth,” noted Michael Cyprys, equity analyst at Morgan Stanley.

“We see further growth ahead for Alts, iShares, international penetration, and the institutional market in the US. Recently acquired Aperio also bolsters solutions offering and organic growth. We expect the premium to widen as BLK takes share in evolving industry and executes on improving organic revenue growth trajectory.”

DELTA AIR LINES: The earnings per share (EPS) is expected to swing back to positive territory for the first time in seven quarters on Wednesday, more than doubling to $0.16 per share compared to a huge loss of -$3.30 per share seen in the same period a year ago.

The Airline company, which provides scheduled air transportation for passengers and cargo throughout the United States and across the world, is forecast to report revenue growth of over 170% in the third quarter to around $8.4 billion. It is worth noting that in the last two years, the airline has beaten consensus earnings estimates just three times.

“Airlines will report 3Q21 results later this month, beginning Oct 13 with Delta Air Lines’ release. We believe 3Q21 started strong, sagged in the middle and then finished strong as people started planning holiday trips,” noted Helane Becker, equity analyst at Cowen.

“We believe 4Q21 guidance will reflect a strong peak, likely >2019 levels while off-peak is likely to lag 2019 levels. Stocks to own include United Airlines (UAL), Alaska Air Group (ALK), Allegiant Travel (ALGT) & Southwest Airlines (LUV).”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE OCTOBER 13

Ticker Company EPS Forecast
JPM JPMorgan Chase $3.00
BLK BlackRock $9.60
INFY Infosys $0.17
WIT Wipro $0.07
FRC First Republic Bank $1.84
DAL Delta Air Lines $0.16

Thursday (October 14)

IN THE SPOTLIGHT: UNITEDHEALTH, DOMINO’S PIZZA

UNITEDHEALTH: Minnesota-based health insurer is expected to report its third-quarter earnings of $4.41 per share, which represents year-over-year growth of over 25% from $3.51 per share seen in the same quarter a year ago.

In the last four consecutive quarters, on average, the company has delivered an earnings surprise of over 11%. The largest insurance company by Net Premiums would post revenue growth of about 10% to around $72.0 billion.

UnitedHealth Group is the number one Medicare Advantage player with ~28% market share, the number two Medicare PDP player with ~20% market share, and the number two commercial player with ~15% market share,” noted Ricky Goldwasser, equity analyst at Morgan Stanley.

United’s model is enhanced via vertical integration with its OptumRx PBM platform, which is one of the three largest PBMs in the country. With a large lead in the breadth of services offerings and considerable exposure to government businesses, UnitedHealth is well-positioned for any potential changes in the US healthcare system. A strong balance sheet and continued solid cash generation give flexibility for continued M&A.”

DOMINO’S: The world’s largest pizza company is expected to report its third-quarter earnings of $3.11 per share, which represents year-over-year growth of about 25% from $2.49 per share seen in the same quarter a year ago.

The company has beaten consensus earnings per share (EPS) estimates only twice in the last four quarters. The largest pizza chain in the world would post revenue growth of about 7% to around $1.03 billion.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE OCTOBER 14

Ticker Company EPS Forecast
UNH UnitedHealth $4.41
BAC Bank Of America $0.71
WFC Wells Fargo $1.00
MS Morgan Stanley $1.69
C Citigroup $1.74
USB US Bancorp $1.15
WBA Walgreens Boots Alliance $1.02
AA Alcoa $1.75
DCT DCT Industrial Trust $0.02
TSM Taiwan Semiconductor Mfg $1.04
DPZ Dominos Pizza $3.11
CMC Commercial Metals $1.19

Friday (October 15)

IN THE SPOTLIGHT: GOLDMAN SACHS

The New York-based leading global investment bank is expected to report its third-quarter earnings of $10.11 per share, which represents year-over-year growth of over 4% from $9.68 per share seen in the same quarter a year ago.

It is worth noting that in the last two years, the world’s leading investment manager has surpassed market consensus expectations for profit and revenue most of the time. The world’s leading investment manager would post revenue growth of over 4% to around $11.25 billion.

“Reason to Buy: Organic growth, solid capital position and steady capital deployment activities continue to enhance Goldman’s prospects. Business diversification offers long-term earnings stability,” noted analysts at ZACKS Research.

“Reason to Sell: Geopolitical concerns and volatile client-activity levels may hinder the top-line growth of Goldman. Further, legal hassles and higher dependence on overseas revenues remain other headwinds.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE OCTOBER 15

Ticker Company EPS Forecast
GS Goldman Sachs $10.11
PNC PNC $3.38
TFC Truist Financial Corp $1.09
HON Honeywell International $2.01
GE General Electric $0.51
PLD ProLogis $0.47
VFC VF $1.16
JBHT J B Hunt Transport Services $1.79
GNTX Gentex $0.42
MAN ManpowerGroup $1.91
SXT Sensient Technologies $0.80
ABCB Ameris Bancorp $1.17
ACKAY Arcelik ADR $0.68
BMI Badger Meter $0.50

 

JPM, BAC, Financials – Unattractive.

Utilities (XLU), staples (XLU), healthcare (XLV), and real estate (XLRE) were the worst performers. These sectors perform well in the declining phases of the business cycle and underperform in the rising phases of the business cycle.

Source: StockCharts.com, The Peter Dag Portfolio Strategy and Management

Financial stocks performed well because they outperform the market during the rising phase of the business cycle. The reason for this outperformance was the strengthening of the business cycle since March 2020. This important pattern was reviewed in my article “Bank Stocks, Interest Rates, And Business Cycles – Not That Obvious (March 25, 2021)”.

There have been important changes in the economy and in our business cycle indicator to suggest some adjustments to the outlook for financials and bank stocks.

Chart, pie chartDescription automatically generated
Source: The Peter Dag Portfolio Strategy and Management

The downturn of the business cycle (Phases 3 & 4) reflects a significant slowdown in business activity. This is the time when portfolios should avoid cyclical sectors and be overweight defensive sectors and bonds as I discussed in my article here.

The decline of the business cycle is anticipated by a rise in commodities and inflation. The reason is these trends undermine consumers’ purchasing power. The resulting slowdown in demand is not recognized at first by business which remains mainly focused on replenishing inventories. Production must be increased to meet sales growth.

Eventually, because of slowing demand, inventories start rising faster than sales. The decision must be made to reduce production to cut inventories.

The reduction in production requires a cut in working hours. The cut in working hours is followed by layoffs, reduction in purchases of raw materials and borrowing to finance operations.

The forces unleashed by the inventory correction are visible in slower growth in manufacturing employment, declines in commodity prices, and lower yields.

This transition from Phase 2 to Phase 3 has major strategic importance for investors. Stocks outperforming during the strong phase of the business cycle (such as industrials) start disappointing because of the uncertain outlook for their profits. The defensive sectors (such as utilities), on the other hand, begin to outperform as investors choose them for their reliable profitability.

The following chart reviews the performance of the financial stocks (XLF) with the updated version of our business cycle indicator.

Source: StockCharts.com, The Peter Dag Portfolio Strategy and Management.The above chart shows the ratio of XLF (financials) and SPY (S&P 500). XLF outperforms SPY when the ratio rises. XLF underperforms SPY when the ratio declines. Investors should be overweight financial stocks when the ratio rises and be underweight financials when the ratio declines.

The lower panel of the chart shows the business cycle indicator, a proprietary indicator updated in each issue of The Peter Dag Portfolio Strategy and Management. The graphs show the best time to own financials is when the business cycle indicator rises, reflecting a strengthening economy.

The business cycle indicator has been declining, as discussed also in previous articles. A likely continuation of the declining of the business cycle indicator points to underperformance of the financial stocks.

The following chart shows how the banking sector, a subset of the financial sector, performs during a complete business cycle.

The above chart shows the ratio of KBWB and SPY. The Invesco KBW Bank ETF (KBWB) normally invests at least 90% of its total assets in companies primarily engaged in US banking activities. KBWB outperforms SPY when the ratio rises. KBWB underperforms SPY when the ratio declines.

The above graphs show KBWB performs like XLF during a business cycle. The time to be overweight in KBWB is when the business cycle indicator (lower panel) rises, reflecting a strengthening economy. Investors should be underweight bank stocks when the business cycle indicator declines, reflecting a weakening economy.

Do regional banks perform differently from financial and bank stocks?

Source: StockCharts.com, The Peter Dag Portfolio Strategy and ManagementThe upper panel of this chart shows the ratio of KRE (regional banks) and SPY. The chart shows regional banks become unattractive (the ratio declines) when the business cycle declines, reflecting a weakening economy.

Are large money-center banks immune to the forces of the business cycle?

Source: StockCharts.com, The Peter Dag Portfolio Strategy and Management

The ratio of JPM (JP Morgan) and SPY (upper panel) rises when the business cycle indicator (lower panel) rises, reflecting a strengthening economy. JPM underperforms SPY (the ratio declines) when the business cycle indicator declines, reflecting a weakening economy.

JPM, a major money center bank, is responding to changes of the business cycle like the overall financial stocks (XLF), bank stocks (KBWB), and regional bank stocks (KRE).

Source: StockCharts.com, The Peter Dag Portfolio Strategy and Management

Bank of America (BAC) is also a money-center bank responding to the business cycle. The upper panel shows the ratio of BAC and SPY. BAC is also outperforming the market (SPY) when the business cycle rises. It underperforms the market when the business cycle declines, reflecting a weakening economy.

Key takeaways

  • Because of sharply rising inflation the business cycle is transitioning from Phase 2 to Phase 3.
  • Financials and bank stocks will continue to underperform the market (SPY) as long as the business cycle indicator declines.
  • Financial stocks and bank stocks will start outperforming the market (SPY) when the business cycle transitions from Phase 4 to Phase 1. This transition will be anticipated by sharply lower inflation.
  • Long-duration Treasury bonds will continue to provide total returns outperforming the returns from SPY as long as the business cycle indicator declines, as discussed in previous articles.

Bond Buying Flows Surge as Funds Reverse Reflation Bets – BofA

BofA’s number crunchers who analyse weekly investment flow figures from EPFR said funds had bought $8.4 billion worth of bonds overall including $2.6 billion of U.S. government bonds.

The figures cover the week up to Wednesday and therefore the powerful rally in bond markets on Monday when the resurgence in global COVID cases seemed to suddenly ignite fears about the likelihood of economies being able to return to normal.

There had also been the largest withdrawal from U.S. stocks in 6 weeks at $2.6 billion and the largest outflow from European stocks and gold since March at $700 million and $1 billion respectively.

It hasn’t been all gloom though. BofA estimated that funds have pumped $3.3 billion into stocks worldwide, although the fact $1.6 billion went into tech and $1.5 billion went into healthcare stocks again highlights the virus’ impact.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Marc Jones; Editing by Saikat Chatterjee)

 

Marketmind: “A Ways Off” and That’s Good

You couldn’t call China’s data dismal — average growth actually surpassed Q1 while June retail sales and industrial output beat expectations. But it does show authorities, who last week unleashed one trillion yuan into the financial system, will ensure conditions stay loose.

But markets’ delight after Powell told Congress he saw no need to rush the shift towards tighter post-pandemic monetary policy, has not lasted long.

World stocks are off recent record highs, tempered possibly by spiking COVID-19 cases across Asia and signs the post-pandemic bounce in company earnings is hitting a peak.

Asian shares rallied, led by a 1% rise in Shanghai but U.S. futures are mostly lower, with the exception of the tech-heavy Nasdaq. European markets too, are opening weaker and 10-year Treasury yields are down at 1.33%, almost 10 basis points off Wednesday’s high point.

The news from the corporate world is all good — the four biggest U.S. banks, Wells Fargo, Bank of America, Citigroup and JPMorgan have posted a combined $33 billion in profits. Asset manager BlackRock beat estimates, with assets at a record $9.5 trillion.

Omens in Europe are good too, with Sweden’s SEB, carmaker Daimler and food delivery firm Just Eat all reporting buoyant earnings. And earlier in Asia, Taiwanese chipmaker, TSMC, posted an 11% rise in Q2 profits.

Key developments that should provide more direction to markets on Thursday:

– South Korea held rates but signalled pandemic era record-low interest rates was coming to an end

-UK added 356,000 jobs in June

-ECB Board Member Frank Elderson speaks

-Philly Fed index

-Bank of England interest rate-setter Michael Saunders speaks

Fed events: Powell testimony continues, Chicago Fed President Charles Evans speaks

US earnings: BNY Mellon, Charles Schwab, US Bancorp, Morgan Stanley, Alcoa

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Sujata Rao; editing by Dhara Ranasinghe)

 

Bank of America shares Dips After Less Than Impressive Q2 Revenue

The shares of Bank of America are trading in the red zone today after the financial institution reported revenue lower than what was expected.

BAC Shares Down By 1.85%

The shares of Bank of America are down by 1.85% at Wednesday’s pre-market trading session. This comes after the bank presented an earnings report that was lower than what analysts had estimated.

According to its earnings report, the Bank of American generated $21.6 billion in the second quarter of 2021, falling below the $21.8 billion estimated by market experts. Furthermore, its earnings were $1.03 a share, including a $2 billion tax benefit. Regardless, the Bank of America presented earnings per share (EPS) of 80 cents, surpassing the 77 cents estimated by market analysts.

Following this presentation, the shares of the financial institution dropped. At the time of this writing, BAC is down by 1.85% and is trading around $39.88 per share. Year-to-date, the bank’s shares have been performing excellently. BAC began the year trading at $30.03 but is up by nearly 30% to currently trade close to the $40 mark.

BAC stock chart. Source: FXEMPIRE

Low-Interest Rate Causes Revenue To Decline

The bank stated that revenue is down by 4% from the same quarter in 2020 due to the 6% drop in net interest income caused by lower interest rates. The Bank of America also explained that lower trading revenue and the lack of a $704 million profit last year also affected its revenue.

This latest development shows that falling interest rate affects the performances of financial institutions. Due to the pandemic, banks had to gather deposits and extend loans, with the declining interest rates squeezing the margin between the amount they pay depositors and charge the borrowers.

The Bank of America recorded a net interest margin of 1.61% in the second quarter of the year, down by 26 basis points from the previous year.

Marketmind: It’s Jay Time!

Inflation in the world’s top economy barrelling ahead for a third straight month has doused the equity rally, just as stocks were staging a come-back after navigating last week’s bond market volatility.

Powell will face questions on how transitory price pressures might be and how fast the Fed might need on withdrawing the monetary support which has been critical for markets.

Wednesday’s figures prompted markets to bring forward the timing of the Fed’s first rate hike, bets that lifted the dollar to a three-month high versus the euro and a one-week high versus the yen.

An added complication was weak demand at Wednesday’s auction of 30-year Treasury bonds, which pushed 10-year yields above 1.4%. And after a softer Wall Street close, Asian stocks fell while European and U.S. markets are tipped to open lower.

Price pressures are a hot topic elsewhere too, with data showing British inflation rising further above the Bank of England’s target, hitting 2.5%.

Some central banks, meanwhile, are going full steam ahead with stimulus withdrawal plans — New Zealand announced a halt to its pandemic-linkd QE programme. Bets on a rate hike this year have sent the Kiwi dollar surging 1%.

Later in the day, the Bank of Canada is also expected to announce plans to taper asset purchases.

Key developments that should provide more direction to markets on Wednesday:

-UK inflation jumps to 2.5% in June

-Bank of Canada expected to taper

-New Zealand c.bank ends bond purchases, paves way for possible rate hikes

-Turkey, Chile and Croatia central bank meetings

-India WPI inflation

-Swedish CPI

-Euro Area Industrial Production

-ECB Board Member Isabel Schnabel speaks

-Bank of England Deputy Governor Dave Ramsden speaks

-Auctions: German 10-year Bund

-Earnings: Citi, BofA, BlackRock, Wells Fargo, Delta Airlines

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Karin Strohecker; editing by Sujata Rao)

S&P 500 and Nasdaq End Down After Hitting Record Highs

The S&P 500 and Nasdaq reached fresh record highs but quickly fell into negative territory after an auction of 30-year Treasuries showed less demand than some investors expected and pushed yields higher.

Data indicated U.S. consumer prices rose by the most in 13 years last month, while so-called core consumer prices surged 4.5% year over year, the largest rise since November 1991.

Economists viewed the price surge, driven by travel-rated services and used automobiles, as mostly temporary, aligning with Federal Reserve Chair Jerome Powell’s long-standing views.

“Any time you get an uptick in interest rates the stock market is going to get nervous, especially on a day like today,” said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.

The S&P 500 growth index dipped 0.05%, while the value index fell 0.70%.

“With growth outperforming value, the takeaway is clearly that inflation from a market perspective is not a real threat in the long term,” said Keith Buchanan, a portfolio manager at GLOBALT Investments in Atlanta, Georgia.

Ten of the 11 major S&P 500 sector indexes ended lower, with real estate, consumer discretionary and financials each down more than 1%.

JPMorgan Chase & Co stock fell 1.5% after the company reported blockbuster quarterly profit growth but warned that the sunny outlook would not make for blockbuster revenues in the short term due to low interest rates.

Goldman Sachs Group Inc dipped 1.2% after its quarterly earnings exceeded forecasts.

Citigroup, Wells Fargo & Co and Bank of America were due to report their quarterly results early on Wednesday.

PepsiCo Inc gained 2.3% after raising its full-year earnings forecast, betting on accelerating demand as COVID-19 restrictions continue to ease.

June-quarter earnings per share for S&P 500 companies are expected to rise 66%, according to Refinitiv data, with investors questioning how long Wall Street’s rally would last after a 16% rise in the benchmark index so far this year.

All eyes now turn to Fed Chair Jerome Powell’s congressional testimony on Wednesday and Thursday for his comments about rising price pressures and monetary support going forward.

The Dow Jones Industrial Average fell 0.31% to end at 34,888.79 points, while the S&P 500 lost 0.35% to 4,369.21.

The Nasdaq Composite dropped 0.38% to 14,677.65.

Conagra Brands Inc dropped 5.4% after the packaged foods company warned that higher raw material and ingredient costs would take a bigger bite out of its profit this year than previously estimated.

Boeing Co fell 4.2% after the Federal Aviation Administration said late on Monday some undelivered 787 Dreamliners have a new manufacturing quality issue.

Declining issues outnumbered advancing ones on the NYSE by a 2.85-to-1 ratio; on Nasdaq, a 3.06-to-1 ratio favored decliners.

The S&P 500 posted 39 new 52-week highs and no new lows; the Nasdaq Composite recorded 61 new highs and 73 new lows.

Volume on U.S. exchanges was 9.5 billion shares, compared with the 10.5 billion average for the full session over the last 20 trading days.

For a look at all of today’s economic events, check out our economic calendar.

(Additional reporting by Devik Jain and Shreyashi Sanyal in Bengaluru; Editing by Cynthia Osterman)

Investors Pivot to Powell After More Hot U.S. Inflation Data

Stocks appeared to be taking June’s sharp consumer price jump largely in stride, with major indexes edging lower after data showed inflation barreling higher amid supply constraints and a rebound in costs of travel-related services.

Benchmark U.S. Treasuries sold off, with yields rising, after a weak auction for the 30-year note.

With Fed Chair Jerome Powell due to testify before Congress on Wednesday, however, many will be watching for signs that the third straight month of hot inflation is pushing the central bank to alter its stance on rising consumer prices, which it has said are transitory, and may begin unwinding its easy-money policies sooner than expected.

The data were “clearly an upside surprise,” said Michael Brown, senior analyst at Caxton in London. “It will make Powell’s testimony on Capitol Hill tomorrow a much trickier exercise than it would’ve otherwise been given that it will put some additional pressure on the ‘transitory’ narrative.”

Fed monetary support has been a critical for markets as the benchmark S&P 500 index has soared over 95% since March 2020. Any signs of a faster-than-expected unwind of the Fed’s policies in order to curtail inflation, such as a tapering of its bond-buying program, stand to rattle asset prices.

A perceived hawkish shift from the central bank last month led stocks to wobble before indexes pushed to new highs, while the benchmark 10-year Treasury yield has moved lower.

Tuesday’s report, which showed June’s consumer price index rose 0.9% after advancing 0.6% in May, potentially complicates views that the economy is cooling off enough to forestall a faster unwind by the Fed.

Expectations of a slowing rebound have in recent weeks weighed on Treasury yields. They have also accelerated a rotation from shares of economically sensitive companies such as banks and energy firms back into the high growth technology-focused stocks that have led markets higher for most of the last decade.

A BofA Global Research survey of fund managers taken earlier this month found that 70% believed the spike in inflation was transitory, with 26% saying it would be longer lasting.

Indeed, some analysts on Tuesday pointed to details of the CPI rise, including a big boost from used car prices, as supporting the idea that inflation may be transitory.

“The report was a little jarring, but nothing in the report was shocking enough to change the narrative,” said Brian Jacobsen, senior investment strategist at Wells Fargo Asset Management. “It still looks like the inflation pressure is highly concentrated in certain areas tied to the re-opening, like used cars, energy, and hotel prices.”

Powell’s appearances before a House of Representatives committee on Wednesday and Senate panel on Thursday come ahead of the Fed’s next policy meeting on July 27-28. Investors are also focused on the Fed’s economic policy symposium in Jackson Hole, Wyoming in late August for when the central bank could signal a shift.

“The market came around to the idea that the Fed wouldn’t allow inflation to get carried away” after the release of the FOMC policy statement in June, said Jack Janasiewicz, a strategist at Natixis Advisors. “The ‘don’t fight the Fed backdrop’ will be very important here. As long as it continues to provide liquidity it’s tough to get bearish on assets.”

For a look at all of today’s economic events, check out our economic calendar.

(Additional reporting by Saqib Iqbal Ahmed, Karen Brettell and Chuck Mikolajczak in New York; Editing by Chizu Nomiyama)