Best Bank Stocks To Buy In May

Key Insights

  • Many bank stocks are trading near yearly lows. 
  • Meanwhile, analyst estimates for some bank stocks are moving higher. 
  • As a result, bank stocks like JPMorgan and Bank of America are trading at attractive valuation levels. 

Bank stocks have mostly moved together with S&P 500 in recent weeks, so they are trading near yearly lows. Worries about inflation and the potential slowdown of the economy are the key bearish catalysts for the stocks in this market segment. At the same time, earnings estimates for some banks have moved higher in recent weeks, so analysts are not as skeptical as traders.

JPMorgan Chase

JPMorgan stock has recently touched yearly lows near $117.50 and is currently trying to rebound. Analysts expect that JPMorgan will report earnings of $11.03 per share in 2022 and $12.56 per share in 2023, so the stock is trading at less than 10 forward P/E.

Importantly, analyst estimates have been moving higher in recent weeks, while the stock has been moving lower. As a result, the stock is down by more than 20% since the start of this year, which may attract speculative traders who are willing to bet that the major pullback is over.

Bank of America

Bank of America is also trading at less than 10 forward P/E, which is not surprising as the stock has just rebounded from its yearly lows.

As in JPMorgan’s case, the market has completely ignored rising analyst estimates, and Bank of America stock has been under pressure together with the broader market.

At this point, it looks that the market is ready for a weak second quarter in the U.S. economy, while analysts do not believe that this would be the case. If analysts are right, JPMorgan stock would be able to gain sustainable upside momentum in the upcoming months.

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

Bank Stocks Will Keep Underperforming. It’s The Business Cycle.

Summary

Bank stocks are sensitive to interest rates.

Interest rates are sensitive to the strength of the business cycle.

The attractiveness of bank stocks depends on the trend of the business cycle. Not interest rates.

My article of January 2021 concluded:

“…… rising yields at the beginning of a business cycle is good news for bank stocks. Yields rising to levels damaging the economy and causing the business cycle to decline is bad news for the banking sector.”

To recognize what is happening now it is useful to review how the banking sector responds to changes in the business cycle.

Chart, pie chart Description automatically generated

Source: The Peter Dag Portfolio Strategy and Management

Business Cycle and Its Phases

The business cycle goes through four distinctive phases. The trends pointing to the end of Phase 4 are:

  • Commodity and inflation are declining.
  • Sales growth is lower than the pace of inventory accumulation.
  • Income after inflation starts rising.
  • Consumer confidence rebounds as consumers respond favorably to the decline of inflation, interest rates, and to the rise of real income.

These favorable developments create the conditions for the business cycle to move into Phase 1. Sales increase because of consumers’ improved financial conditions. Business is forced to boost production to build up inventories to respond to the rising demand. Business will have to hire new people, buy raw materials, and increase borrowing to improve and possibly expand capacity.

These activities place a floor on commodities and interest rates. As the positive feedback continues, improved sales feed into rising inventories, rising employment, and increased borrowing.

This expansion benefits the banking sector, of course, because it provides the liquidity needed to fuel the positive loop thus creating even more growth. This is the time when bank stocks outperform the market.

There is a point, however, when the high level of production places upward pressure on commodities, interest rates, and inflation. The business cycle enters Phase 2, reflecting an even stronger economy.

But rising commodities, interest rates, and inflation eventually have a negative impact on the finances of consumers as it is happening now. Consumer confidence peaks and then declines. Demand for goods slows down.

Business recognizes inventories are now rising too rapidly due to the slower demand and are having a negative impact on earnings. Production is curtailed. Purchases of raw materials are reduced. Hiring is cut. Improvements and expansions of capacity are delayed resulting in lower borrowing, an unwelcome development for banks.

What Phase Are We in Now?

Chart, line chart, histogram Description automatically generated

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

The above chart shows the business cycle indicator updated in real time from market data and reviewed in each issue of The Peter Dag Portfolio Strategy and Management. It shows the previous two cycles (2011-2014 and 2014-2020) and the current one started in 2020.

This indicator and data about growth in heavy truck sales, in income after inflation, in retail sales after inflation, and the action of the defensive market sectors (see below) confirm the business cycle is now declining, reflecting slower economic growth. The business cycle is now in Phase 3.

The slowdown process will continue until the causes that produced it are brought under control and consumers recognizes their finances are improving. This new environment will be characterized by the decline in inflation and interest rates. This process will take place in Phase 4, the most painful phase for consumers and the financial markets.

During Phase 3 and Phase 4 the sectors outperforming the markets are utilities (XLU), healthcare (XLV), staples (XLP), REITs, and long duration Treasury bonds.

The performance of the various sectors keeps repeating as the business cycle swings from periods of stronger to weaker growth.

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

The sectors outperforming the market over the last two hundred days (except for energy) have been the four sectors mentioned above. Their performance confirms the business cycle is declining, reflecting a weakening economy.

The financial sector, and banks in particular, is a cyclical sector outperforming the market during periods of strengthening business cycle.

Chart, line chart, histogram Description automatically generated

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

The above chart shows the ratio of Invesco KBWB bank ETF and the S&P 500 ETF (ratio KBWB/SPY). The ratio rises when bank stocks outperform the market. The ratio declines when bank stocks underperform the market.

The lower panel of the above chart shows the business cycle indicator computed in real-time as reviewed in each issue of The Peter Dag Portfolio Strategy and Management.

The chart shows bank stocks outperform the market (the ratio rises) when the business cycle rises, reflecting a strengthening economy. The ratio declines, reflecting the underperformance of the bank stocks, when the business cycle indicator declines in response to a weakening economy. Chart, histogram Description automatically generated

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

The above chart shows regional banks stocks (ETF: KRE) respond like the major center banks stocks to the changes of the business cycle. They outperform the market when the business cycle indicator rises and underperform the market when the business cycle indicator declines. Chart, histogram Description automatically generated

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

Even large and well managed banks like JP Morgan (JPM) are not immune to the changes in the business cycle as shown in the above chart. The stock of JP Morgan outperforms the market when the business cycle rises and underperforms the market when the business cycle declines.

Key Takeaways

  1. Bank stocks respond to changes of the business cycle and not of interest rates.
  2. Bank stocks outperform the market when the business cycle rises, reflecting a strengthening economy (Phase 1 and Phase 2 of the business cycle).
  3. There is a point when rising interest rates and inflation cause the business cycle to decline. This is the time when bank stocks start underperforming (Phase 3 and Phase 4 of the business cycle).

Best Bank Stocks To Buy Now

Key Insights

  • Banks have recently released their earnings reports. 
  • Some banks have managed to exceed analyst estimates, and their stocks moved away from yearly lows. 
  • Some leading bank stocks are down by 25% – 35% from their highs, so speculative traders will likely start searching for bargains.

Bank stocks are trading near yearly lows as the market is worried that rising rates and high commodity prices will slow down the economy and hurt bank profits. However, some bank stocks have already suffered strong pullbacks from their recent highs and may attract speculative traders.

Bank of America

Bank of America has just released its first-quarter results. The company reported revenue of $23.2 billion and earnings of $0.80 per share, beating analyst estimates on both earnings and revenue.

Ahead of the report, the stock was down by roughly 25% from highs that were reached back in February. The results exceeded analyst estimates, and traders rushed to buy the stock near yearly lows.

Citigroup

Citigroup stock has also enjoyed support after the recent earnings report. The stock has been moving lower for many months after it touched highs near the $80 level back in June 2021.

The market was skeptical about Citigroup’s financial performance, but the company has easily managed to beat analyst estimates on both earnings and revenue, and the stock received a major boost. Citigroup stock has a good chance to develop additional upside momentum in the upcoming weeks as it is still down by about 35% from 2021 highs.

JP Morgan Chase

Unlike the above-mentioned banks, JP Morgan had a disappointing quarterly report. The company missed analyst estimates on earnings as it had to build credit reserves.

More details on the company’s outlook will be revealed on Investor Day on May 23. However, speculative traders may still buy the company’s stock after the strong pullback as the company’s shares have already moved to the levels last seen at the start of 2021.

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

Utilities Rising & Transporters Sinking – Sector Rotation Is Providing Clues

Recently, the stock market is beginning to show us signs that the bull market may be coming to an end. Commodities such as energy, grains, and precious metals have all experienced nice rallies. Price action also confirms money flow coming out of transports and into utilities.

SPY – SPDR S&P 500 ETF TRUST – DAILY COMPARISON CHART

SPDR & SPY Chart

TheTechnicalTraders – TradingView

As we review our cycle chart, please note the specific placement of the Transportation, Precious Metal, Energy, and Utilities sectors.

We especially want to focus on the Transportation sector depreciating while the Utility sector appreciates.

These sectors provide us with important clues as to where we are in the current economic cycle.

Stock Market & Economic Performance Graphic

TheTechnicalTraders

UTILITIES SECTOR UP +7.50% YTD

In March 2022, the Dow Jones Utility Average crossed 1,000 for the first time in its nearly 100-year history as the utility sector is significantly outperforming the market this year.

Many investors believe that the XLU is the most effective risk-reducing equity ETF available and may be looking to the utility sector as a safe-haven play.

Other safe-haven markets that we are following closely are Gold, the U.S. dollar, and the Switzerland franc.

XLU – SPDR SELECT SECTOR ETF UTILITIES– DAILY CHART

SPDR & XLU Chart

TheTechnicalTraders – TradingView

TRANSPORTATION SECTOR DOWN -15.92% YTD

The transportation sector has dropped approximately -21.59% from its peak in November 2021. Market cycles are measured from peak to trough. Generally, traders consider a stock index in a bear market when its closing price drops at least 20% from its peak. The move in the XLU from 100.00 to 80.00 also represents a drop of 33.33% of the total 2020-21 bull market move.

On April 1st, the U.S. Department of Labor reported that the number of truck transportation jobs fell in March after 21 consecutive monthly gains. Then on April 8th, Bank of America (NYSE: BAC) downgraded multiple transportation stocks, citing “waving demand and price dives.” Bank of America analyst Ken Hoexter told clients, “Given deteriorating demand outlooks and rapidly falling freight rates, we downgrade ratings on 9 of the 28 stocks in our coverage universe”.

The transportation index was created in July 1884 by Charles Dow and has long been viewed as a leading indicator of the broad market’s direction because economic demand shows up first in shipping orders. Historically, a down-turn in freight indicates a potential broad economic recession.

XTN – SPDR S&P TRANSPORTATION ETF – DAILY CHART

SPDR & XTN Chart

TheTechnicalTraders – TradingView

KNOWLEDGE, WISDOM, AND APPLICATION ARE NEEDED

It is important to understand that we are not saying the market has topped and is headed lower. This article is to shed light on some interesting analyses of which you should be aware. As technical traders, we follow price only, and when a new trend has been confirmed, we will change our positions accordingly. We provide our ETF trades to our subscribers, and in the last six trades we entered this month, five have been closed at a profit, one remains open, and we have locked in partial profits on that one as well! Our models continually track price action in a multitude of markets, asset classes, and global money flow. As our models generate new information about trends or a change in trends, we will communicate these signals expeditiously to our subscribers and to those on our trading newsletter email list.

Successfully trading is not limited to when to buy or sell stocks or commodities. Money and risk management play a critical role in becoming a consistently profitable trader. Correct position sizing utilizing stop-loss orders helps preserve your investment capital and allows traders to manage their portfolios according to their desired risk parameters. Additionally, scaling out of positions by taking profits and moving stop-loss orders to breakeven can complement ones’ success.

WHAT STRATEGIES CAN HELP YOU NAVIGATE The CURRENT MARKET TRENDS?

Learn how we use specific tools to help us understand price cycles, set-ups, and price target levels in various sectors to identify strategic entry and exit points for trades. Over the next 12 to 24+ months, we expect very large price swings in the US stock market and other asset classes across the globe. We believe the markets have begun to transition away from the continued central bank support rally phase and have started a revaluation phase as global traders attempt to identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern begin to drive traders/investors into Metals and other safe-havens.

Historically, bonds have served as one of these safe-havens, but that is not proving to be the case this time around. So if bonds are off the table, what bond alternatives are there and how can they be deployed in a bond replacement strategy?

We invite you to join our group of active traders and investors to learn and profit from our three ETF Technical Trading Strategies. We can help you protect and grow your wealth in any type of market condition by clicking on the following link: www.TheTechnicalTraders.com

Chris Vermeulen
Chief Market Strategist
Founder of TheTechnicalTraders.com

 

US FDIC Calls Banks To Notify Their Crypto-Related Activities

Key Insights:

  • US bank insurer wants its client banks to report their crypto activities, including transactions and trading.
  • The FDIC would provide banks with supervisory feedback upon reviewing.
  • The regulator is concerned about crypto risks like safety, financial stability, and consumer protection.

The Federal Deposit Insurance Corporation (FDIC), the US government bank insurer, has asked banks under its supervision to report on crypto activities such as transactions and trading.

Per a letter released by the Corp on Thursday, FDIC-supervised institutions that engage in crypto activities or have plans should provide information on such actions.

“The FDIC will review the information and provide relevant supervisory feedback.”

The affiliated institutions should comply with the FDIC letter, notifying the government body on any crypto-related activities, including Bitcoin transactions and trading, maintaining stablecoin reserves, and issuing crypto and other digital assets.

Significant Risks

The FDIC letter arrives due to rapidly evolving risks in these activities and concerns about whether the crypto space is not well understood, given limited experience in the nascent space.

The release stated,

“Crypto-related activities may pose significant safety and soundness risks, as well as financial stability and consumer protection concerns. Moreover, these risks and concerns are evolving as crypto-related activities are not yet fully understood.”

FDIC regulates a slew of US-based banks, including national banks and financial behemoths such as the Bank of America and Goldman Sachs.

However, the FDIC isn’t the only banking regulator in the US keen on focusing crypto-related activities. Michael Hsu, head of the Office of the Comptroller of the Currency (OCC), recently warned banking entities that trading crypto derivatives could bring more regulatory scrutiny.

In February, the insurance corporation said that the federal banking agencies need to carefully consider risks posed by crypto products and “determine the extent to which banking organizations can safely engage in crypto-asset-related activities.”

Yellen’s Call for Digital Asset ‘Oversight’

The FDIC letter shortly follows Yellen’s remarks on how regulatory frameworks would need to reflect the risks of crypto activities appropriately.

Treasury Secretary Janet Yellen said during a Thursday speech that crypto regulations must keep pace with innovation to ensure that financial stability and consumer protections are in place.

She said at American University in Washington, DC,

“Our regulatory frameworks should be designed to support responsible innovation while managing risks—especially those that could disrupt the financial system and economy.”

Yellen emphasized the need for a regulatory framework that is “tech neutral” – based on risks and assets rather than technologies.

Paxos Gets Monetary Authority of Singapore Approval

Key Insights:

  • Crypto trading and custody platform Paxos gets MAS approval.
  • Paxos becomes the first platform to receive licenses in New York and Singapore.
  • The latest approval further cements Singapore’s status as Asia’s crypto hub.

Launched in 2012, Paxos is a trading and custody services provider. As a crypto exchange, Paxos also supports Binance USD (BUSD) and Pax Dollar (USDP) and also offers users PAX Gold (PAXG).

Each PAXG token is backed by one fine troy ounce of a 400 Oz London Gold Delivery gold bar. PAXG holders own the underlying physical gold held in custody by Paxos Trust Company.

Paxos also builds blockchain solutions for institutional customers. These include Bank of America, Credit Suisse, Interactive Brokers, PayPal, and Société Generale.

Paxos has had a presence in Singapore since 2012, while also regulated by the New York Department of Finance Services.

Monetary Authority of Singapore Gives Paxos Coveted License

On Thursday, Paxos announced in-principal approval for a Major Payments Institution license from the MAS.

According to the announcement, Paxos became the first blockchain infrastructure platform to secure regulatory oversight in the financial hubs of New York and Singapore.

As a result of the MAS license, Paxos can offer its digital asset and blockchain products and services to Singaporean domiciled customers.

 

Co-Founder and CEO, Paxos Asia said,

We’re excited to have MAS as our regulator, and with their oversight, we’ll be able to safely accelerate consumer adoption of digital assets globally by powering regulated solutions for the world’s biggest enterprises.”

MAS sets a High Bar for Crypto-Related Firms

The MAS does not readily hand out licenses, as Binance discovered in 2021. Last year, Binance reportedly withdrew its Singapore license application for failing to meet MAS AML and KYC requirements.

A small number of other crypto-related shops have been more fortunate, however. In October, DBS Vickers obtained a license to offer digital payment token services.

At the time, the Australian crypto exchange Independent Reserve was reportedly the only foreign entity to hold a Singapore license to allow digital payment token services.

Before this week, only FOMO Pay and TripleA had obtained digital payment token services licenses alongside DBS Vickers and Independent Reserve.

This week, Swiss crypto bank Sygnum received in-principal approval to expand Singapore Capital Market Services (CMS) license. The Swiss crypto bank had previously held a Singapore Capital Markets Services (CMS) license for asset management since 2019.

The in-principal approval will allow Sygnum Bank to provide corporate finance advisory services, deal with capital market products, and provide custodial services.

Paxos and Sygnum Approvals a Boost for Hub Aspirations

Singapore and the MAS have been particularly active in the digital asset space. The Republic’s status as a global digital asset hub continues to evolve despite a high bar for platforms to meet.

Singapore’s high bar is evident in the number of applications the MAS has rejected. According to media reports, the MAS turned down 103 of 176 by December 2021.

In 2021, Binance withdrew its Singapore application for reportedly failing to meet MAS KYC and AML requirements. Since then, the MAS has also banned crypto exchange advertising in public.

This week’s news could be a shift in attitudes towards crypto-related firms. News of Singapore’s sovereign wealth fund Temasek making strategic investments into the space could support such a view.

Temasek reportedly led a fresh fundraising round for the Australian NFT startup Immutable. A $200m funding round took the value of Immutable to $2.5bn, with investors including Tencent Holdings, Mirae Asset, and Declaration Partners, among others.

In February, Temasek had led a $200m round for Amber Group, a global digital assets platform.

Bank of America Says Bitcoin Trades as a Risk Asset

Since the crypto market has become more popular, Bitcoin is one of the principal topics to discuss when it comes to this market.

Alkesh Shah of Bank of America said that Bitcoin has traded as a risk asset since June of 2021. Although its price volatility has fallen since 2013, it is still very volatile compared to S&P 500, Nasdaq 100, and Gold, commented Shah on the research note.

With the bitcoin price being highly volatile, Shah said that Bitcoin would be less traded as an inflation hedge in developed countries, except in countries with “inflationary environments,” which some investors may view it as an inflation hedge.

Alkesh Shah is the head of the Global Cryptocurrency and Digital Asset Strategy research in Bank of America that was launched in October 2021. Simultaneously with the launch, a report called “Digital Assets Primer: Only the first inning” was published.

What Are the Other Banks Saying?

JPMorgan recently estimated that Bitcoin’s “fair value” is about $38,000, when it is trading at the time of writing at $44,008.38. The estimation is based on Bitcoin price volatility being almost four times as gold. The news also said that Bitcoin could reach $150k as a long-term target.

Wells Fargo published a report earlier this week called “Cryptocurrencies – too early or too late?”. The report commented that Bitcoin is perhaps one of the least volatile cryptocurrencies, but “it is still roughly four times more volatile than gold”.

Last month, Goldman Sachs said that Bitcoin will compete with gold as a store of value. As crypto adoption continues, parts of Gold market capitalization will shift into Bitcoin.

BTC Is Up 14.5% in the Last Seven Days

BTC is the biggest cryptocurrency by market capitalization with $835 billion, according to CoinMarketCap. It is trading at $44,008.38 and is up 1.30% in the last 24 hours.

The cryptocurrency is still down 36.12% from its all-time high of $68,900 in November 2021. Since hitting its all-time high it has been in a descending channel until it found support around $35,000 in mid-late January. Then it started an ascending channel, as you can see below:

BTC/USD Chart – Source: FXEmpire.

One sure thing is that banks think of Bitcoin as a highly volatile asset when it compares to traditional financial markets.

If Bitcoin adoption continues and the overall crypto market matures, volatility might decrease.

Bank of America Strategists Call US CBDC As “Inevitable Evolution”

The Bank of America has said that a central bank digital currency (CBDC) for the U.S. is “inevitable”, Bloomberg writes.

Crypto strategists Alkesh Shah and Andrew Moss from the bank wrote in a report Monday, stating that a digital dollar is an “inevitable evolution of today’s electronic currencies.” They have predicted the rollout to be available sometime between 2025 to 2030.

They see the necessity of a digital dollar as it would differ from existing digital money available to the general public because it would be a liability of the central bank. This could mean that there would be no liquidity risks for the digital dollar.

If not a U.S. CBDC, stablecoins such as Tether or USD Coin, both pegged to the US Dollar, will “likely flourish” in the near future, the analysts predicted.

“We expect stablecoin adoption and use for payments to increase significantly over the next several years as financial institutions explore digital asset custody and trading solutions and as payments companies incorporate blockchain technology into their platforms,” they wrote.

The timely arrival of opinions from crypto experts on the U.S. CBDC denotes that the country is doing the spadework in preparation for the launch.

BofA’s Pro-Crypto Moves

Bank of America has been showing a constructive outlook when it comes to crypto trials and experiments.

The bank launched crypto research in October 2021, amid “growing institutional interest.”

“This isn’t just Bitcoin anymore, this is digital assets and it’s creating a whole ecosystem of new companies, new opportunities, and new applications,” Candace Browning, head of global research at BofA Securities told Bloomberg.

The research was launched along with the publication of a report that looked through various use cases of cryptos including tokens, applications powered by smart contracts, CBDCs, stablecoins, and NFTs.

BofA has also kept its eye on non-fungible tokens (NFTs), recognizing their potential use cases. Anto Paroian, chief operating officer at crypto/digital assets hedge fund ARK36 told at the time,

“The most interesting thing to note is that the [report] explicitly mentions NFTs as one of the current drivers of the digital asset market.”

The bank also showed interest in the metaverse, calling it a “massive opportunity“, resulting in widespread crypto adoption.

The US CBDC Still Underway

The U.S. has been tirelessly carrying out efforts to enter the CBDC fold. For instance, the Fed released a highly anticipated digital dollar report recently that although talked about the pros and cons of a CBDC, did not give firm timelines.

The Fed has also clearly stated in the report that it “does not intend” to issue a digital dollar anytime soon.

While the report was welcomed by many crypto enthusiasts, lawmakers were critical of the Fed’s CBDC progress. Republican U.S. Senator Cynthia Lummis, a leading digital currency supporter, said in a tweet that she is “undecided” whether there is a need for a CBDC or not.

The Biden administration on Monday announced that it is drafting an executive order for a government-wide crypto strategy.

A CBDC could carry an array of advantages including speeding up payments globally and allowing consumers access to the financial system. Even so, the Fed cautioned that a poorly designed digital dollar could weaken banks, creating privacy concerns.

Bank of America Bounces at Support After Strong Quarter

Bank of America Corp. (BAC) is trading higher by more than 3% in Wednesday’s pre-market after beating Q4 2021 earnings-per-share (EPS) estimates and reporting inline revenues. The banking giant posted a profit of $0.82 per-share, $0.06 higher than expectations, while revenue rose a healthy 9.8% year-over-year to $22.06 billion. The buy-the-news reaction took place at 50-day moving average support, suggesting the stock has posted a tradable low.

Named As Top 2022 Pick

Credit loss reserves improved by $542 million, with BAC recouping funds due to asset quality and macroeconomic improvements, partially offset by loan growth. Non-interest expense rose 6% to $14.7 billion, partially offset by pandemic related costs. Loan and lease balances added $10 billion to $945 billion, with the ending balance rising to $979 billion. The company traded at 15.1x forward earnings estimates ahead of the report, higher than Citigroup Inc. (C) and Well-Fargo and Co. (WFC).

Piper Sandler named Bank of America as the 2022 top pick at year’s end, adding a $57 price target last week. The institution is highly levered to rising rates that should increase overnight lending spreads and add to profits. Current consensus expects that rate increases will add $5 billion to the company’s net interest income by the end of 2023. And, although investment banking is expected to ease after a torrid 2021, it comprised 27% of revenue in the first three quarters. Continued growth in that segment should underpin performance well into 2023.

Wall Street and Technical Outlook

Wall Street consensus stands at a ‘Moderate Buy’ rating based upon 14 ‘Buy’, 2 ‘Overweight’, 8 ‘Hold’, 2 ‘Underweight’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $40 to a Street-high $64 while the stock is set to open Wednesday’s session about $4 below the median $52 target. Given this placement, Bank of America is well positioned to rally into a test of the multiyear high above $50, posted earlier this month.

Bank of America broke out above 8-year resistance in the 20s in 2016 and tested that level successfully during March 2020’s pandemic decline. The subsequent uptick mounted the Feb. 2020 peak in March 2021, ahead of a buying spike that’s reached within 5 points of the 2006 all-time high. That level marks the obvious target in this advance but keep in mind that old highs also denote major resistance that can take a long time to overcome.

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. 

In The Spotlight – Big Wall Street Banks as the Main Power in S&P 500

Banks’ earnings

Big Wall Street banks are in the spotlight right out of the gate with Goldman Sachs set to release results before markets open. They will be followed by Bank of America, Morgan Stanley, and U.S. Bancorp tomorrow (Wednesday). Bank results got off to a mixed start on Friday. JPMorgan Chase, Citigroup, and Wells Fargo all topped profit estimates for Q4 but JPMorgan and Citi delivered disappointments in other areas.

In particular, investors are nervous about higher expenses that cut into Q4 profits for both JPMorgan and Citi and which both banks forecast would continue to weigh on results in 2022. JPMorgan and Citi also saw -11% decreases in trading revenue, with fixed income trading down by double digits for both.

There are also signs of slowing loan growth that some analysts worry is an early sign of slowing consumer demand for big-ticket items as inflation continues to climb. While banks will eventually benefit from higher U.S. interest rates that are anticipated in the year ahead, a big pullback in consumer lending is a threat to some of the more lofty Wall Street expectations had for the sector in 2022.

Global economy

Globally, not a lot changed over the extended weekend. China might have provided a bit of a surprise with additional monetary easing into a struggling GDP and sagging real estate prices. It’s worth noting, Omicron has now been detected in Beijing for the first time, just three weeks before the city is due to host the Winter Olympics. Now the Chinese are shutting down and suspending the sale of Olympic tickets to the public.

Tensions remain heated between Hong Kong activists and Chinese government officials. North Korea launched its fourth missile test this month. After North Korea’s missile test last week, the US announced sanctions on eight North Korean and Russian individuals and entities for supporting North Korea’s ballistic missile programs.

Tensions between the U.S. and Russia seem to be headed in the wrong direction with Russia over the weekend moving troops and equipment into Belarus for joint military exercises.

The so-called “Allied Resolve” drills are set to take place near borders with NATO members Poland and Lithuania, as well as Ukraine where Russia has maintained its alarming military presence.

Most U.S. military experts don’t really think Russia has any real intentions of invading Ukraine or any other EU country. However, Western countries also have increased their military presence along borders and other strategic locations which increases the chances that a broader conflict could “accidentally” be sparked.

Europe’s gas supplies are also at risk as Russia continues to dangle the threat of cutting them off. Most of the tension stems from Russia’s demand that former Soviet countries be barred from entering NATO, something the U.S. and other NATO allies have refused.

In the USA, we are heading deeper into earnings season and investors are going to be paying close attention to costs and expenses. As I mentioned, late last week, JPMorgan warned that higher expenses and higher spending on hiring in 2022 could create some headwinds.

Looking ahead, it will be interesting to see how many executive teams start providing guidance and warnings that corporate expenses are rising faster than anticipated and what if any damage will be due to profit margins?

Remember, some companies have said they are passing the additional rising costs on to the consumer while other companies are eating a majority of the higher expenses in an attempt to gain more market share.

How the stock market decides to differentiate the strategy and style could greatly impact money flow and valuations. Goldman Sachs, J.B. Hunt, Charles Schwab, Citrix, Concentrix, and Interactive Brokers report earnings today.

Data to watch

Tomorrow we have Alcoa, Bank of America, Kinder Morgan, Morgan Stanley, Procter & Gamble, and United Airlines.

Thursday we have American Airlines, Baker Hughes, Netflix, and Union Pacific.

Then next week we have big names like Apple, Boeing, Caterpillar, McDonalds, Microsoft and Verizon reporting earnings.

Let’s also not forget next week we have the first Fed FOMC meeting of the new year.

With the U.S. Federal Reserve getting ever closer to implementing its first rate hikes, which most anticipate will begin in March, investors are growing less enchanted with some of the high-growth and momentum stocks that saw outsized share price gains last year.

This trend is most evident in the tech-heavy Nasdaq where nearly half of the index’s stocks have fallen by -50% from their recent peaks. The Nasdaq itself is only down by about -7% from its most recent record high. The selloff has been very much concentrated in highly-leveraged companies that have yet to deliver a profit, as the prospect of higher rates reduce future profit potential. Earnings results from these high-fliers will likely be harshly scrutinized as Wall Street tries to separate the “wheat from the chaff,” so to speak.

On the economic data front, Empire State Manufacturing and the NAHB Housing Market are today’s highlights.

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

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)