US stocks slump as investors digest inflation data showing prices surged in June

Stock trader worried

US stocks fell Tuesday after inflation data showed prices rose more than expected in June.

The Consumer Price Index increased 0.9% in June, far higher than Bloomberg’s consensus estimate among economists of 0.5%. The reading marked the largest one-month change since June 2008.

On a year-over-year basis, prices increased 5.4%, higher than economists’ expectations for a 4.9% year-over-year increase. However, June 2020 was the lowest point for Core CPI during the pandemic shutdown, so year-over-year increases are expected.

Here’s where US indexes stood at the 4 p.m. ET close on Tuesday:

Mike Lowengart, E*Trade Financial managing director of investment strategy, said that the real question on investors’ minds after the CPI read is how long hot inflation numbers will last.

“Transitory has been the buzzword when it comes to inflation but it’s a tricky phrase. Does it mean a few months, a year, or even longer? Every successive high inflation read will make it harder and harder for the Fed to remain accommodative. And on the markets front, we may experience a bit of a tug of war as traders balance the economic data with strong bank earnings beginning to roll in,” he said.

Elsewhere in markets, Amazon, Apple, Alphabet, and Microsoft all hit record intraday highs today. The stalwarts are helping propel the S&P 500 to new all-time highs.

The benchmark index has notched 39 record closing highs through Monday’s session, according to Bespoke Investment Group. If it keeps up its current pace, it could close out 2021 with 74 record closing highs, the second-most of all time, Bespoke said.

The yield on the US 10-year Treasury gained 4.7 basis points to 1.41%.

Bank earnings began this morning, with JPMorgan and Goldman Sachs beating expectations.

West Texas Intermediate crude gained 1.58% to $75.27 per barrel. Brent crude, oil’s international benchmark, climbed 1.77%, to $76.49 per barrel.

Gold was flat at $1,807.2 per ounce.

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JPMorgan beats estimates again in the 2nd quarter amid record quarter for investment banking

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JPMorgan CEO Jamie Dimon.

  • JPMorgan beat estimates once again in the second quarter, with earnings per share of $3.78.
  • The bank’s investment banking arm posted record numbers, and the firm also received a $2.3 billion boost by reclaiming money that had been set aside to cover bad loans.
  • JPMorgan boss Jamie Dimon said customers and clients were faring well as the economy reopened.
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JPMorgan again beat expectations with its second-quarter earnings, as the banking giant benefited from record investment-banking fees and the release of cash set aside to cover loan losses.

The lender’s revenue came in at $31.4 billion, it earnings showed on Tuesday. That was above the $29.9 billion analysts had been expecting but down from $33.8 billion in the same quarter a year earlier.

Net income stood at $11.9 billion in the second quarter, boosted by the release of $3 billion that had been put aside to cover bad loans, which added $2.3 billion to the bottom line after charge-offs. Net income was up 155% from $4.7 billion a year earlier.

Earnings per share came in at $3.78, above expectations of $3.21 and up 174% from the same quarter in 2020.

Here are the key numbers:

  • Earnings per share: $3.78 vs. $3.21 expected.
  • Revenue: $31.4 billion vs. $29.9 billion expected.

“JPMorgan Chase delivered solid performance across our businesses,” said Chairman and CEO Jamie Dimon.

“This quarter we once again benefited from a significant reserve release as the environment continues to improve… Consumer and wholesale balance sheets remain exceptionally strong.”

Read more: UBS names 6 bank stocks to buy as successful stress tests open the door to buybacks and dividends – and highlights 2 laggards to avoid

The Wall Street lender, the biggest in the US by assets, is seen as a bellwether company whose earnings give a sense of the health of the economy. Its results on Tuesday showed how banks are benefitting from rapid economic growth which has made much of the money they set aside in 2020 to cover bad coronavirus loans redundant.

JPMorgan’s earnings also showed that its investment banking arm fared well in the second quarter despite quieter markets. Investment banking fees rose 25% year on year to a record high of $3.6 billion, largely driven by the boom in mergers and acquisitions.

The bank’s stock was down 0.63% in pre-market trading after the earnings were released, at $157.00. It has risen more than 20% in 2021 as so-called cyclical stocks have benefited from a lifting of coronavirus restrictions and strong economic outlook.

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Credit Suisse posts Q1 loss of $275 million after Archegos blowup and says it expects more pain from the fund’s implosion

credit suisse blunders 2x1
Thomas Gottstein, Credit Suisse CEO.

Credit Suisse, Switzerland’s second-biggest bank after UBS, reported first-quarter earnings on Thursday that showed the bank witnessed a slightly narrower net loss than analysts had expected.

A net loss of 252 million francs ($275 million) beat the 815 million francs ($890 million) mean estimate conducted by the bank’s own poll of analysts.

The bank said it had exited 97% of its trading positions related to a US-hedge fund. Credit Suisse has consistently been reluctant to name the fund, but the bank has cushioned the blow from its remaining exposure to Archegos Capital.

It expects to incur related losses of another 600 million francs ($654 million) in the second-quarter this year and said it would raise $2 billion to shore up its capital, in the aftermath of the hedge fund’s collapse.

Here are the key numbers:

  • Net Revenue: CHF 7.6 billion ($8.3 billion) versus CHF 5.2 billion ($5.6 billion) in Q4
  • International wealth management pre-tax profit: CHF 523 million ($571.3 million) versus CHF 442 million ($482 million) estimated
  • Revenue from investment-banking division: CHF 3.9 billion ($5.4 billion) versus CHF 2.2 billion ($3 billion) a year ago
  • Net loss: CHF 252 million ($275 million) versus CHF 353 million ($385 million) in Q4

“Our results for the first quarter of 2021 have been significantly impacted by a CHF 4.4 billion charge related to a US-based hedge fund,” CEO Thomas Gottstein said in a statement. “The loss we report this quarter, because of this matter, is unacceptable.”

“Among other decisive actions, we have made changes in our senior business and control functions; we have enhanced our risk review across the bank; we have launched independent investigations into these matters by external advisors, supervised by a special committee of the Board; and we have taken several capital-related actions,” he added.

Swiss regulator FINMA announced the same day that it has opened enforcement proceedings against the bank after it suffered losses in connection with Archegos.

Credit Suisse has emerged as the hardest-hit among the banks affected by the Archegos collapse. Other banks were quicker to wind down their related positions, leaving them relatively unscathed. The Swiss lender was already battling with a controversy linked to supply-chain finance as it had $10 billion worth of funds tied to Greensill Capital.

The impact on Credit Suisse from both the Archegos and Greensill saga could add up to $8.7 billion, Bloomberg reported, citing JPMorgan analysts.

Shares in Credit Suisse fell 5% in early European trading.

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Bank of America smashes forecasts to double profits in 1st-quarter earnings as the US rebound boosts Wall Street

Bank of America trader NYSE
Bank of America’s trading division increased its revenue sharply.

Bank of America’s first-quarter earnings smashed analysts’ estimates on Thursday, with profits more than doubling year on year to $8.1 billion as the bank released reserves set aside to cover coronavirus loan losses.

BofA’s $8.1 billion of net income was far higher than analysts’ forecasts of $6.25 billion and was up from $4 billion a year earlier, when the pandemic weighed on banks. It pushed earnings per share to $0.86, well above the consensus estimate of $0.66.

The rapidly recovering US economy helped the bank release $2.7 billion from the reserves it had built up as a buffer against potential loan losses, boosting profit.

And like its peers Goldman Sachs and JPMorgan, Bank of America benefited from a boom in trading revenue during a period of stock market volatility. Revenue from sales and trading jumped 17% to $5.1 billion, the bank said.

Bank of America shares were up 1.18% in pre-market trading to $40.35 after the first-quarter earnings were released.

Here are the key numbers:

  • Net income: $8.1 billion, versus Bloomberg consensus estimate of $6.25 billion
  • Earnings per share: $0.86, versus consensus estimate of $0.66
  • Revenue: $22.8 billion, versus consensus estimate of $21.97 billion

“Our team produced exceptional results this quarter,” Bank of America chairman and chief executive Brian Moynihan said in a statement. He said the bank had achieved “record or near-record levels of deposits, investment flows, investment banking revenue, digital users and client engagement.”

However, Moynihan said that ultra-low interest rates continued to pose a challenge to revenue, with increased just 0.2% year on year to $22.8 billion. Net interest income fell 16% to $10.2 billion.

Both Goldman and JPMorgan also smashed Wall Street estimates on Wednesday, with the banking giants benefiting from a recovering economy, government stimulus and frothy markets. Wells Fargo similarly beat predictions as a turnaround effort showed early results.

“The US earnings season kicked off… with the largest US banks proving once again they can top analysts’ expectations by wide margins,” said Hussein Sayed, chief market strategist at trading platform FXTM.

“Growth in investment banking, capital markets and paring back loan loss reserves were major factors contributing to the bottom lines.”

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US stocks rise after three top Wall Street banks crushed earnings and a lively Coinbase listing

nyse surprised trader
  • US stocks rose on Thursday following blockbuster earnings results from three large banks.
  • Coinbase made its splash on the Nasdaq, closing its first day of trading at a valuation of $86 billion.
  • Fed Chair Powell said the central bank will scale back bond purchases before lifting interest rates.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

US stocks edged higher on Thursday after three of the largest US banks beat analyst expectations with their first-quarter results, and Coinbase began trading at a valuation of more than $100 billion.

The crypto exchange’s shares closed 14% lower at $328.28 per share on Wednesday, giving it a valuation of $86 billion on a fully diluted basis.

Futures on the Dow Jones, S&P 500, and Nasdaq rose between 0.3% and 0.6%, suggesting a higher open for US indices later in the day.

JPMorgan reported a 25% jump in trading revenue even as analysts expected lower volumes across the market, with an overall revenue of $33 billion for the quarter. Revenue estimates were $30.4 billion.

Goldman Sachs too posted a profitable quarter on the back of strong trading and deal-making. Wells Fargo’s earnings topped estimates as its quarterly net income rose to $4.7 billion, helped by a larger than expected release of loan loss reserves.

Fed Chairman Jerome Powell reiterated on Wednesday the central bank won’t taper its emergency asset purchases until it sees progress on its goals of above 2% inflation and maximum employment. Powell disclosed he hasn’t had conversations on policy with President Joe Biden – a sharp contrast from how former President Donald Trump frequently urged the Fed to lower interest rates and critiqued its independence.

Elsewhere in Europe, ECB President Lagarde said at a Reuters event the euro zone economy is still standing on “two crutches” of monetary and fiscal stimulus, and they shouldn’t be removed until full recovery.

Members of the ECB are scheduled to meet next week for the first time since they increased the pace of the Pandemic Emergency Purchase Programme to decelerate the surge in bond yields.

London’s FTSE 100 rose 0.3%, the Euro Stoxx 50 rose 0.2%, and Frankfurt’s DAX rose 0.4%.

Asian markets were trading lower aside data showing India reported a record 200,000 new coronavirus cases.

Shares in Japan firms with strong Chinese ties declined ahead of Prime Minister Yoshihide Suga’s meeting with President Joe Biden, as investors are wary of potential pressure to align with Washington’s tough stance on Beijing.

China’s Shanghai Composite fell 0.5%, Japan’s Nikkei gained 0.07%, and Hong Kong’s Hang Seng fell 0.4%.

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Bank stocks could jump 45% on rising bond yields and attractive relative value, Morgan Stanley says

FILE PHOTO: A sign is displayed on the Morgan Stanley building in New York U.S., July 16, 2018. REUTERS/Lucas Jackson/File Photo
FILE PHOTO: A sign is displayed on the Morgan Stanley building in New York

  • Bank stocks could jump as much as 45% on a range of macroeconomic factors, according to Morgan Stanley.
  • “Banks have been a major beneficiary of the value rotation currently underway, with the S&P 500 Banks industry group up 19.9% YTD,” the note said.
  • Historically, bank stocks have benefitted from rising yields and a steepening curve, the note added.
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Bank stocks could jump as much as 45% on various macroeconomic factors, from a steepening yield curve to attractive relative valuation that supports the sector’s outperformance, according to Morgan Stanley.

In a note published on Wednesday, the bank listed five factors that could drive the cohort higher, especially on the expectation of a rotation to value stocks rotation continuing in the near term.

“Banks have been a major beneficiary of the value rotation currently underway, with the S&P 500 Banks industry group up 19.9% [year-to-date], outperforming the broad S&P 500 index by 15.4%,” the note, led by quantitative strategist Boris Lerner, said.

Higher rates, strong economic growth, and fiscal stimulus all contribute to the growth of support value stocks, the note said. The analysts are seeing a a 20%-45% relative upside in the base case scenario.

(1) Rising yields

Banks have historically benefitted from rising yields and a steepening curve, the note said. As yields are expected to continue going up, which will result in a steeper yield curve, bank stocks are expected to keep performing well.

(2) Attractive relative valuation

Banks trade at a significant discount to the market, the note said, and because valuations are near median levels, market valuation at this point looks relatively high. Banks are cheap relative to the market, the note said. The analysts added that the current macroeconomic environment is supportive of value stocks, which have been outperforming growth stocks since the fourth quarter of 2020.

(3) Bank earnings are set to increase

Five key factors are driving EPS growth for banks, Morgan Stanley said. They are: (1) a steepening yield curve due to rising interest rates, (2) high GDP growth, which will boost loan growth, (3) lower credit losses, (4) accelerating job growth, and (5) accelerating buybacks as earnings grow.

(4) Light positioning

Exposure to financials among equity hedge funds is at a 10-year low, Morgan Stanley said, despite the recent rally in financials stocks.

“Active long-only managers are also underweight the sector relative to passive funds,” the note said.

(5) Momentum

The recent rally in financial stocks is expected to increase the net exposure of financials within the S&P 500 from -2% to +15% in the next 3 months, the note said. “Currently, 12-month S&P 500 momentum strategies are net short financials,” the note added. “Shorter-term momentum strategies, based on 9-month or 6-month returns often lead the 12-month momentum, and these portfolios currently have financials at 15% to 23% (highest exposure relative to other sectors).”

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