Earnings Season Brings Worries to Wall Street

What is wrong with the banking sector?

Goldman Sachs yesterday became the latest to fan worries about declining profit margins after the bank reported a +33% jump in compensation which contributed to a -13% decline in Q4 profits.

The escalating costs mirror similar results disclosed by fellow big banks JPMorgan and Citigroup, as well as numerous other companies that have already reported or issued earnings warnings in recent weeks.

Just over 4% of S&P 500 companies have released Q4 earnings, and about 60% of those have cited a negative impact from higher labor costs on current and/or expected future earnings.

10-Year Treasury yield

Stock prices are also facing headwinds from a big jump in bond yields. The 10-Year Treasury yield hit 1.88%, the highest since before the pandemic hit and up from a low of 1.36% in early December.

This is largely a reflection of the U.S. Federal Reserve’s more hawkish monetary policy shift that is widely expected to now bring four or five interest rate hikes in 2022. However, there is a lot of uncertainty surrounding the exact timing and degree of those hikes, with many on Wall Street worried that ongoing labor market tightness, supply chain disruptions, Covid-related shutdowns, and geopolitical tensions will continue to drive costs even higher.

That in turn would likely mean even more aggressive action from the Federal Reserve.

There’s a lot of talk that the 10-Year could eventually push to 2.3% or even 2.5%. the market had to deal with a similar jump in the 10-Year back in 2013 during the “Taper Tantrum” or when the Fed had to start reversing their easing policy that had been associated with the US housing crisis global market meltdown.

If you remember, the stock market went through a fairly rough patch that year as the Fed shifted policy but eventually the market selloff stabilized and stocks rebounded to have a good year. this time around, however, many Wall Street insiders are talking about how the double whammy of escalating costs and higher interest rates is driving a shift away from so-called “momentum” stocks and back toward old school investment fundamentals.

Meaning investors are turning away from hot, trendy stocks that have defied gravity-and lacked profits-in favor of companies with proven track records and good cash flows.

Inflation fears are also once again being exacerbated by the oil market with prices hitting a seven-year high, the highest level since October 2014. The latest jump stems largely from deteriorating relations between fellow OPEC members after Yemen’s Iran-aligned Houthi group attacked the United Arab Emirates overnight on Monday. A Saudi-led coalition retaliated with airstrikes on the Houthi group. The renewed tensions between the UAE and Saudi Arabia raise the risk of more disruptions to the already tight global oil supply outlook.

Data to watch

Today, investors will be digesting Housing Starts and Permits for December, both of which are expected to pull back slightly from last months results.

On the earnings front, today’s highlights include Alcoa, Bank of America, Discover, Fastenal, Kinder Morgan, Morgan Stanley, Procter & Gamble, State Street, United Airlines, United Health, and U.S. Bancorp.

I still think there’s some rough sailing and uncertainty in the waters ahead… Also keep in mind, the Nasdaq 100 is quickly approaching its 200-Day Moving Average. Bulls want to argue that we are going to see a big bounce higher once we test that level. Bears argue that a close below that level could bring on a wave of heavy computer based technical selling. I’m not sure who is going to come out correct but I expect we see some extremes as the battle plays out… stay nimble!

Think About This… Perhaps +40% of fund managers have never traded or invested in a rising rate and rising inflation environment.

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

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.

Week In Review: Dollar Dips, Red Hot CPI, Disappointing Retail Sales

The mood across financial markets turned cautious on Monday as traders pondered the possibility of the Federal Reserve raising interest rates sooner than expected. Surging Covid-19 cases across the globe also weighed on sentiment, hitting appetite for riskier assets.

Our trade of the week was gold. We questioned whether the precious metal would be in trouble as rising inflation boosted expectations around for higher interest rates. On Tuesday, king dollar weakened, even after Federal Reserve Chairman Jerome Powell stated during his Senate confirming hearing that the central bank was likely to raise interest rates this year.

Mid-week, the US December inflation report showed prices rising at their fastest rate in almost 40 years! The consumer prices index (CPI) jumped to 7% year-on-year, up from 6.8% in November while matching the median forecast from economists surveyed by Bloomberg. We saw the Dollar Index (DXY) slam into 95.00 following the inflation report. Although markets initially offered a calm reaction to the CPI, equity bulls felt the burn on Thursday as rate hike bets rose.

Gold regained its mojo, deriving strength from a weaker dollar and slight pullback in Treasury yields. After experiencing sharp losses last week, the precious metal concluded this week roughly 1.2% higher.

All eyes were on the US retail sales on Friday which disappointed expectations. Sales fell by 1.9% in December, as worries over the Omicron variant and rising inflation hit spending. With this terrible combination hitting household consumption, this could weigh on economic growth in the final quarter of 2022. Interestingly, the probability of a rate hike in March stands at 91.5% as of writing.

In the FX space, the dollar staged a rebound on Friday but still ended the week lower against all G10 currencies. Oil posted a fourth straight weekly gain amid signs that the market is tightening as global consumption remains resilient in the face of Omicron.

In other news, earnings season kicked off with major banks under the spotlight. JPMorgan Chase, the Number 1 U.S. bank by assets showed profit and revenue that topped estimates. Citigroup beat revenue estimates but showed a 26% plunge in profits while Wells Fargo reported better-than-expected fourth-quarter results. With earnings season set to kick into higher gear in the week ahead as more companies publish their fourth-quarter results, it may be wise to fasten your seatbelts for potential volatility!

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.

Citigroup Shares Fall 3% as Profit Declines 26% in Q4 on Higher Expenses

Citigroup shares fell nearly 3% on Friday after the New York City-based investment bank said its profit slumped 26% in the fourth quarter, largely due to reflecting higher expenses, partially offset by higher revenues and lower cost of credit.

The investment bank reported quarterly adjusted earnings of $1.46​​ per share, beating the Wall Street consensus estimates of $1.38 per share. The company said revenue rose 3.1% to $17.02 billion from a year ago. That too beat the market expectations of $16.75 billion.

Net income of $3.2 billion decreased 26% from the prior-year period, reflecting higher expenses, partially offset by higher revenues and lower cost of credit.

Following this, Citigroup stock slumped nearly 3% to $65.86 on Friday. The stock rose over 12% so far this year after falling more than 2% in 2021.

Moreover, JPMorgan shares also slumped over 4% in pre-market trading on Friday after the leading global financial services firm said a slowdown in its trading arm caused its profits to decline by 14% in the fourth quarter.

For the full year 2021, Citigroup reported a net income of $22.0 billion on revenues of $71.9 billion, compared to net income of $11.0 billion on revenues of $75.5 billion for the full year 2020.

Analyst Comments

“While the stock is cheap at 0.6x NTM BVPS, and new CEO is taking strong, proactive strategic action to boost returns closer to peers, we believe these actions will take time to play out,” noted Betsy Graseck, equity analyst at Morgan Stanley.

Citi is exiting 13 consumer businesses in Asia and EMEA, and focusing on higher-growth areas of US consumer, Asia WM, International wholesale and consumer payments. These actions could drive ROE higher than the 9% we are modelling for 2023, but we expect the stock will only start to fully reflect this once revenues begin to accelerate. Citi benefits less than peers from higher rates, and we expect some of our more rate sensitive stocks will outperform as the Fed begins to raise rates next year.”

Citigroup Stock Price Forecast

Fifteen analysts who offered stock ratings for Citigroup in the last three months forecast the average price in 12 months of $78.56 with a high forecast of $120.00 and a low forecast of $64.00.

The average price target represents an 18.30% change from the last price of $66.41. From those 15 analysts, eight rated “Buy”, seven rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $82 with a high of $111 under a bull scenario and $53 under the worst-case scenario. The firm gave an “Equal-weight” rating on the investment bank’s stock.

Several other analysts have also updated their stock outlook. Jefferies cut the target price to $80 from $87. JPMorgan slashed the target price to $76 from $80.5. Piper Sandler lowered the target price to $88 from $94. Evercore ISI cut the target price to $64 from $74.

Technical analysis also suggests it is good to sell as 100-day Moving Average and 100-200-day MACD Oscillator signals a strong selling opportunity.

Check out FX Empire’s earnings calendar

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.

Earnings Season To Push Financial Sector To New Highs?

Bulls mostly believe the sell-off that followed the Fed’s “minutes” last week was overdone and largely a knee-jerk reaction to information that investors already knew. The biggest shock seems to be the confirmation that the Fed is looking to start reducing its balance sheet as soon as this year. St. Louis Fed President James Bullard said that he favors starting to shrink the central bank’s balance sheet shortly after the first rate hike, which he said could come as soon as March.

Senate Banking Committee

Investors hope to get more details this week from Fed Chair Jerome Powell and Fed Governor Lael Brainard at their confirmation hearings before the Senate Banking Committee, where both are expected to get pressed pretty hard about how the central bank intends to counter inflation.

Powell is up first on Tuesday, January 11, followed by Brainard on Thursday, January 13. Brainard is being considered for the Vice-Chair seat. It wouldn’t be surprising to see bulls stick close to the sidelines ahead of those testimonies and possibly even a bit into the start of earnings season.

It’s worth noting that some of the biggest stock declines this week have been those viewed as “riskier” stocks like unprofitable tech companies with lofty valuations and some of the meme-driven trades.

Generally speaking, the prospect of higher interest rates very shortly means high-growth companies-aka heavily dependent on debt-are facing lower profits as the cost of maintaining that debt/growth rises. That means the Q4 earnings season could bring about a reckoning for companies that are viewed as overly leveraged, with Wall Street growing more worried about how they are going to perform in a higher rate environment. At the same time, bulls believe companies that can continue to expand along with the economy will ultimately help drive stock prices even higher in the quarters ahead.

Earnings season unofficially kicks off this Friday, January 14, with big Wall Street banks JP Morgan Chase, Citigroup, and Wells Fargo. Looking ahead to this week, key data includes Wholesale Inventories on Monday; the December Consumer Price Index on Wednesday; the Producer Price Index on Thursday; and Retail Sales, Industrial Capacity, Business Inventories, and Consumer Sentiment on Friday.

XLF to reach 43.50p and more?

XLF forecast analysis

XLF is now the leading sector of the SP500 Index. Moreover, it has all the chances to show outstanding performance in the next 4 – 8 weeks. The accumulation is quite good in this ETF. Besides, the financial sector has a strong seasonal and cyclical tendency to rally in January and February. Indeed, a lot depends on the Q4 earnings.

The banks showed excellent results in the previous three quarters. So, I expect the same now. Also, after XLF has built support near 73, it should text the next critical Gann level at 43.5 (in extension 46).

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

Earnings Week Ahead: Q4 Season Kicks Off With Delta Air Lines and Big Banks Like BlackRock, Citigroup, Wells Fargo and JPMorgan

This week will also bring us an inflation report, US-Russia talks, and a lot of Fed talks. The following is a list of earnings slated for release January 10-14, along with a few previews. 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 10

Monday (January 10)

TICKER COMPANY EPS FORECAST
AZZ AZZ $0.82
CMC Commercial Metals $1.29
TLRY Tilray $-0.09

 

Tuesday (January 11)

TICKER COMPANY EPS FORECAST
SNX TD Synnex Corp $2.6
ACI Albertsons $0.55

 

Wednesday (January 12)

TICKER COMPANY EPS FORECAST
INFY Infosys $0.17
JEF Jefferies Financial Group $1.4
KBH KB Home $1.77
SJR Shaw Communications $0.3
VOLT Volt Information Sciences $0.07

 

Thursday (January 13)

IN THE SPOTLIGHT: DELTA AIR LINES

Delta Air Lines, one of the major players in the United States aviation industry, is expected to report earnings per share (EPS) of $0.11 in the fourth quarter, more than doubling compared to a huge loss of $-2.53 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 130% to around $9.2 billion. It is worth noting that in the last two years, the airline has beaten consensus earnings estimates just four times.

According to ZACKS Research, based on strong passenger demand during the holidays, Delta Air Lines raised its guidance for the fourth quarter of 2021. It hopes to achieve “meaningful” profitability in 2022 despite Omicron-induced woes. In the December quarter, the airline expects to make approximately $200 million in adjusted pre-tax profit, according to an SEC filing.

Compared to the same period last year, Delta expects to recover 74% of its adjusted total revenues (excluding third-party refinery sales) in the fourth quarter. In 2022, DAL expects its capacity to reach approximately 90% of its level in 2019. In 2023 and beyond, it expects to achieve pre-pandemic levels of capacity. With adjusted revenues (ex-refinery) exceeding $50 billion in 2024, the company expects earnings per share to surpass $7, ZACKS analysts noted.

“Mgmt. laid out a plan to meet and exceed pre-pandemic financial benchmarks by 2024 by building a best-in-class premium airline. The plan is sound and targets appear conservative though the near-term trajectory remains outside of mgmt.’s control. We see line of sight to the stock doubling from here,” noted Ravi Shanker, equity analyst at Morgan Stanley.

“Why Overweight? Delta Air Lines (DAL) has some of the strongest customer satisfaction numbers among the other Legacy peers, while also commanding a higher PRASM, making it our preferred Legacy carrier. While DAL cannot escape Legacy overhangs (delayed International/corporate recovery, strained balance sheet), it should rise with the industry tide. The risk-reward looks attractive.”

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

TICKER COMPANY EPS FORECAST
TSM Taiwan Semiconductor Manufacturing $1.14

 

Friday (January 14)

IN THE SPOTLIGHT: BLACKROCK, CITIGROUP, JPMORGAN, WELLS FARGO

BLACKROCK: The world’s largest asset manager is expected to report its fourth-quarter earnings of $10.14 per share, which represents a year-on-year decline of about 0.4% from $10.18 per share seen in the same period a year ago.

The New York-based multinational investment management corporation would post revenue growth of nearly 15% to around $5.15 billion. The company has been able to beat earnings per share (EPS) estimates most of the time in the last two years.

“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 ~11% 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.”

CITIGROUP: The New York City-based investment bank is expected to report its fourth-quarter earnings of $1.87 per share, which represents a year-on-year decline of about 10% from $2.07 per share seen in the same period a year ago. But the U.S. third-largest banking institution would post revenue growth of nearly 4% to $17.06 billion.

“While the stock is cheap at 0.6x NTM BVPS, and new CEO is taking strong, proactive strategic action to boost returns closer to peers, we believe these actions will take time to play out,” noted Betsy Graseck, equity analyst at Morgan Stanley.

Citi is exiting 13 consumer businesses in Asia and EMEA, and focusing on higher growth areas of US consumer, Asia WM, International wholesale and consumer payments. These actions could drive ROE higher than the 9% we are modelling for 2023, but we expect the stock will only start to fully reflect this once revenues begins to accelerate. Citi benefits less than peers from higher rates, and we expect some of our more rate sensitive stocks will outperform as the Fed begins to raise rates next year.”

JPMORGAN: The leading global financial services firm with assets over $2 trillion is expected to report its fourth-quarter earnings of $2.94 per share, which represents a year-on-year decline of over 20% from $3.79 per share seen in the same period a year ago. But one of the world’s oldest, largest, and best-known financial institutions would post revenue growth of just over 2% to $29.9 billion.

WELLS FARGO: The fourth-largest U.S. lender is expected to report its fourth-quarter earnings of $1.11 per share, which represents a year-on-year growth of over 70% from $0.64 per share seen in the same period a year ago. The San Francisco, California-based multinational financial services company would post revenue growth of more than 4% to $18.8 billion.

Wells Fargo (WFC) benefit to EPS from rising rates is the highest in the group, with each ~50bps increase in FF driving ~15% increase in EPS; 50bps in long-end rates drives ~7% to EPS WFC is in a strong position to monetize higher rates, as cash stands at 15% of earning assets, 7% points above pre-pandemic levels,” noted Betsy Graseck, equity analyst at Morgan Stanley.

WFC is taking action to restructure its business mix as it works to exit the Fed consent order/asset cap and reduce its expense base. Excess capital at Wells stands at 10% of market cap vs. 5% for median Large Cap Bank, enabling a net buyback yield of 10% in 2022 and a total cash return of 12%. Risks around the timing of asset cap removal and further regulatory action remain.”

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

TICKER COMPANY EPS FORECAST
C Citigroup $1.87
JPM JPMorgan Chase $2.94
BLK BlackRock $10.15
WFC Wells Fargo $1.11

 

Former Citi Top Trading Executive Launches Hivemind Capital

The cryptocurrency space has seen an influx of Wall Street talents in recent years as the industry continues to grow. An increasing number of institutional investors are entering the crypto space in a bid to fund some of the leading and exciting innovations in the sector.

Matt Zhang Launches a $1.5 Billion Crypto Fund

Matt Zhang, a former trading executive at Citi, announced the launch of his $1.5 billion cryptocurrency fund yesterday. The fund, named Hivemind Capital, is a multi-strategy venture designed to invest in the fast-growing cryptocurrency and blockchain ecosystem.

According to the press release, Hivemind will be headquartered in New York and will invest in crypto companies and trade digital assets. The fund will also enter the gaming space as nonfungible tokens (NFTs), and the metaverse will continue to grow in popularity and adoption.

Zhang pointed out that he created the fund because he believes blockchain technology is a paradigm shift, and the space is still in its early days. “Our mission is to provide start-to-finish capital and infrastructure solutions to visionary entrepreneurs and category-defining crypto projects,” said Matt Zhang, Founder and Managing Partner of Hivemind,” he added.

Hivemind said its first technology is Algorand, a proof-of-stake protocol designed to create infrastructure for the global financial sector. Algorand is one of the leading blockchain projects in the world, and its ALGO token is amongst the top 50 by market cap.

Zhang said, “We believe that Algorand is the preeminent blockchain protocol that allows institutional and corporate users to connect with the decentralized economy. With the explosive growth of the digital asset space, people tend to forget how early the crypto economy still is. We want to team up with partners who have the patience to build an enduring business.”

Hivemind said it is in talks with a number of other leading layer-1 networks and will announce partnerships over the coming months.

VC Funds are Entering the Crypto Space

The cryptocurrency market has seen numerous venture capital funds enter the space over the past few months. In June, Andreessen Horowitz launched Crypto Fund III, a $2.2-billion venture fund.

Paradigm also launched a $2.5 billion cryptocurrency fund earlier this month in a bid to invest in the crypto and metaverse space. The amount of capital cryptocurrency projects are attracting will keep increasing as the market grows bigger and adoption increases.

Citigroup’s Latest Appointment Shows Financial Institutions are Serious About Digital Assets

An increasing number of financial institutions are expanding their presence within the crypto, and digital asset sector as institutional investors demand exposure to the emerging market.

Citigroup Pushes Further into Digital Assets with Puneet Singhvi’s Appointment

Citigroup, one of the leading financial institutions in the United States, has announced that Puneet Singhvi will be in charge of the digital assets division of its Institutional Clients Group (ICG). The appointment comes into effect on December 1 and signals the bank’s intention to expand its presence within the digital asset space.

The financial institution said it is set to hire 100 additional personnel to its digital asset division as the demand for the emerging market continues to increase. According to Emily Turner, head of business development at the ICG, the bank is currently exploring the possibility of providing digital assets to its clients.

Turner said, “Prior to offering any products and services, we are studying these markets, as well as the evolving regulatory landscape and associated risks in order to meet our own regulatory frameworks and supervisory expectations.”

Financial Institutions are Opening Cryptocurrency Asset Divisions

Citigroup is the latest financial institution to launch a division focused on cryptocurrencies and other digital assets. A few years ago, banks and other major financial institutions around the world were against cryptocurrencies, sometimes making it tough for investors to buy cryptos with cash.

However, the trend has changed in recent years, and more financial institutions are slowly embracing cryptocurrencies. JPMorgan, one of Bitcoin’s biggest critics, launched Onyx, a division focused on digital assets. The bank even went further to launch JPM Coin, its own digital currency.

In addition to JPMorgan, other leading financial institutions in the United States have entered the cryptocurrency space over the past few months. New York Mellon and Northern Trust are working on offering custodial services to their clients, while U.S Bank announced a few weeks ago that it would offer crypto custody services to money managers.

Goldman Sachs and Morgan Stanley have also entered the digital assets space. The adoption of cryptocurrencies and other digital assets by major financial institutions will increase over the coming months and years as more retail and institutional investors seek exposure to the cryptocurrency market.

Wall Street Banks Set to Profit Again When Fed Withdraws Pandemic Stimulus

With the central bank nearing the time when it will start winding down its asset purchases, banks are set to profit again as increased volatility encourages clients to buy and sell more stocks and bonds, analysts, investors and executives say.

The Fed has been buying up government-backed bonds since March 2020, adding $4 trillion to its balance sheet, as part of an emergency response to the COVID-19 pandemic.

The strategy was designed to stabilize financial markets and ensure companies and other borrowers had sufficient access to capital. It succeeded but also resulted in unprecedented levels of liquidity, helping equity and bond traders enjoy their most profitable period since the 2007-09 financial crisis.

The top five Wall Street investment banks – JP Morgan Chase & Co, Goldman Sachs, Bank of America, Morgan Stanley and Citigroup – made an additional $51 billion in trading revenues last year and in the first three quarters of 2021, compared with the comparative quarters in the year prior to COVID, according to company earnings statements.

The trading bonanza, along with a boom in global deal-making, has helped bank stocks outperform the broader market. The KBW Bank index has risen by 40% in the year-to-date compared with a 19% advance in the S&P 500.

Now, banks with large trading businesses are expected to profit a second time as the Fed starts to withdraw the stimulus, prompting investors to rejig their portfolios again.

“As investors look to position based on that volatility, that creates an opportunity for us to make markets for them. And obviously that would lend itself to improved performance,” Citigroup Chief Financial Officer Mark Mason told reporters this week.

Fed Chair Jerome Powell signaled in late September that tapering was imminent. An official announcement is expected in November and the central bank has signaled it will look to halt asset purchases completely by mid-2022 – a timetable seen by some investors as aggressive.

Banks have already benefited from enhanced volatility since Powell’s comments in late September, which led to a spike in Treasury yields and a decline in equity markets. That led to a pick-up in trading volumes at the end of the third quarter and the start of the fourth quarter, executives say.

“It is possible we will see bouts of volatility associated with the tapering,” Morgan Stanley Chief Financial Officer Sharon Yeshaya said in an interview Thursday, adding that she doesn’t expect a repeat of 2013’s ‘taper tantrum.’

At that time, the Fed’s decision to put the brakes on a quantitative easing program sent markets into a frenzy as investors dumped riskier assets in favor of ‘safe havens,’ leading to a spike in government bond yields and sharp falls in equity markets.

Fed officials are confident of avoiding that scenario this time around by giving markets enough advance warning of their intentions.

“The sweet spot is where you have some volatility but not enough to disrupt the broader capital markets which have been an important contributor to healthy trading results over the past year,” said JMP Securities analyst Devin Ryan.

Third-quarter results from the biggest U.S. banks this week showed strong performances in equities trading, boosted by stocks hitting record highs, but a more subdued showing in bond trading reflecting calm in those markets.

Investors are anticipating activity will ramp up again in the run-up to tapering, when it eventually begins.

“It will certainly be a positive,” said Patrick Kaser at Brandywine Global Investment Management. “Volatility is a friend to trading businesses.”

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

(Additional reporting by David Henry; Editing by Andrea Ricci)

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)

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)

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

 

S&P 500, Dow Gain Amid Inflation Concerns, Debt Ceiling Debate

The S&P 500 index and the Dow Jones Industrial Average advanced, but the Nasdaq Composite closed lower as Treasury yields halted their ascent. Defensive sectors took the lead as investors sought stability in the volatile market.

All three remain on course to post monthly declines, with the bellwether S&P 500 snapping a seven-month winning streak.

“The same story we’ve seen for a couple of weeks,” said Oliver Pursche, senior vice president at Wealthspire Advisors, in New York.

“Investors are concerned about three things: the eventual taper of bond purchases by the Fed, ongoing inflation with Chairman Powell saying it’s going to stick around longer than initially expected, and the debt ceiling issue that congress is grappling with.”

Powell, speaking at a European Central Bank event, expressed frustration over persistent supply chain woes which could keep inflation elevated for longer than expected.

The stock market strengthened following his remarks.

“Powell has been very good at delivering the news officially that everyone knows is coming,” Pursche said.

Wrangling continued on Capitol Hill over funding the government as the Friday deadline to prevent a shutdown approached, with mounting concerns over a U.S. credit default.

U.S. Treasury yields paused after a runup in recent days as the debt ceiling debate unfolded in Washington.

The Dow Jones Industrial Average rose 90.73 points, or 0.26%, to 34,390.72; the S&P 500 gained 6.83 points, or 0.16%, at 4,359.46; and the Nasdaq Composite dropped 34.24 points, or 0.24%, to 14,512.44.

Of the 11 major sectors in the S&P 500, materials suffered the largest percentage drop, with utilities leading the way with a 1.3% gain.

Boeing Co provided the biggest lift to the Dow following China’s aviation regulator’s successful 737 MAX test. The planemaker’s shares rose 3.2%.

Discount retailer Dollar Tree Inc jumped 16.5% after increasing its buyback authorization by $1.05 billion to $2.5 billion.

Drugmaker Eli Lilly & Co gained 4.0% on Citigroup’s rating upgrade to “buy” from “neutral.”

Advancing issues outnumbered decliners on the NYSE by a 1.26-to-1 ratio; on Nasdaq, a 1.34-to-1 ratio favored decliners.

The S&P 500 posted seven new 52-week highs and two new lows; the Nasdaq Composite recorded 38 new highs and 151 new lows.

Volume on U.S. exchanges was 11.42 billion shares, compared with the 10.45 billion average over the last 20 trading days.

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

(Reporting by Stephen Culp; Additional reporting by Devik Jain in Bengaluru; Editing by Richard Chang)

European Shares End Higher on Dovish Fed, Entra Leads Gains

The pan-European STOXX 600 index closed 0.4% higher, with mining stocks up 1.9%, while real estate stocks added 1.5%.

The day’s gains helped the STOXX 600 close 0.8% higher for the week, after trading flat for several days. Commodity-linked stocks were the best weekly performers, as they bounced back from steep losses.

Entra was the best performer on the STOXX 600, rising 4.6% as its peer Castellum bought 11.8% of shares in the firm from the government pension fund in Norway.

The STOXX 600 extended its gains after Powell’s highly anticipated announcement, which reassured investors that programs which have flooded markets with liquidity for the past year will remain in place for the time being.

“Powell’s warning about the risks of premature tightening and repeated reference to “much ground to cover” to reach the Fed’s employment objective hint that the Fed may be on hold until Q4 at the earliest,” said Matt Weller, global head of research at Forex.com.

U.S. stocks touched record highs after the announcement, while European stocks were less than a percent away from their peak, as investors looked past rising COVID-19 cases and concerns over slowing economic growth.

A survey showed French consumer confidence eased marginally in August, while morale amongst Italian businesses and consumers also fell this month.

The Delta variant of the coronavirus is only expected to have a limited impact on the euro zone economy, which remains on course for robust growth this year and next, European Central Bank Chief Economist Philip Lane said earlier this week.

Just Eat Takeaway.com, which owns GrubHub, fell 7.5% after the New York City Council approved legislation to license food-delivery apps and permanently cap commissions they can charge restaurants.

Just Eat was the biggest percentage loser on the STOXX 600 on Friday.

Norwegian fish farmer Salmar rose 2.5% after the company dropped plans to launch an 11.8 billion crowns ($1.29 billion) cash bid for rival Norway Royal Salmon (NRS). NRS shares fell 11.8%.

French auto parts maker Faurecia gained 2.7% to 42.07 euros after Citigroup hiked the price target on the company’s stock to 56 euros from 41 euros.

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

(Reporting by Sruthi Shankar and Ambar Warrick in Bengaluru; Editing by Shounak Dasgupta and Jonathan Oatis)

NAB to Buy Citi’s Australia Consumer Business in $882 Million Deal

The deal, which includes a A$250 million premium, will elevate NAB’s personal banking business as the lender vies for a bigger share among Australia’s “Big Four” banks that control more than 80% of the market.

“The cards and payments sector is rapidly evolving and access to a greater share of payments and transaction data will help drive product and service innovation across our personal banking business,” said NAB Chief Executive Officer Ross McEwan.

The deal comes after U.S. lender Citi in April said it would exit its 13 overseas consumer operations under an overhaul by new boss Jane Fraser to boost profitability.

Citi’s consumer business in Australia had lending assets of A$12.2 billion and deposits of A$9 billion at the end of June.

Under the terms, 800 Citi employees and senior management will join NAB. Citi’s institutional business and underlying technology or platforms are not part of the deal, which is subject to regulatory approvals.

The Australian lender expects annual pre-tax cost savings of A$130 million over three years, and will spend A$165 million in fiscal 2022 and 2023 to build a new unsecured lending platform for the combined business.

Total acquisition and integration costs will come up to A$375 million, NAB said, adding the deal was expected to close by March 2022. The bank, Australia’s third-largest, said it would enter talks with Citi’s white label partners, but cautioned that all of them may not transition.

NAB, which is set to provide a third-quarter trading update on Thursday, will fund the acquisition with its existing funds.

($1 = 1.3602 Australian dollars)

(Reporting by Nikhil Kurian Nainan in Bengaluru; Editing by Rashmi Aich, Ramakrishnan M. and Subhranshu Sahu)

Goldman Sachs to Raise Pay for Junior Investment Bankers – Business Insider

The bank’s second-year analysts will now make $125,000 in base compensation, while first-year associates will earn $150,000, Business Insider reported https://www.businessinsider.com/goldman-sachs-raises-salaries-investment-bankers-junior-analysts-associates-salary-2021-8?IR=T, citing two people familiar with the situation.

No formal announcement about the pay raise has been made and it was unclear which other levels of employees at the investment banking division have also been given salary increases, the report from the financial and business news website said.

Goldman Sachs declined to comment.

Investment banks have raised pay for first- and second-year associates this summer in an attempt to ease the strain on these workers and compensate them more for their work supporting more senior staff in a year of unprecedented deal making.

Citi Group, Morgan Stanley, UBS Group AG and Deutsche Bank AG have already increased pay for their first-year analysts to around $100,000, a raise of about $15,000.

In February, a group of junior bankers in Goldman’s investment bank told senior management they were working nearly 100 hours a week and sleeping 5 hours a night to keep up with an over-the-top workload and “unrealistic deadlines.” Half of the group, which consisted of 13 first-year employees, said they were likely to quit by summer unless conditions improved.

Goldman’s Chief Executive Officer David Solomon has said the bank was working to hire more associates to help with the workload, and vowed to enforce the “Saturday rule,” which prohibits employees from working between 9 p.m. Friday night and 9 a.m. on Sunday, except in certain circumstances.

(Reporting by Elizabeth Dilts Marshall, and Derek Francis in Bengaluru; Editing by Jacqueline Wong)