D&D Note (7.14.2022) ~ Bank Earnings Disappoint but Markets Claw Back From the Lows ~
Banks reported earnings this morning and while not horrible they did disappoint investors and the markets were considerably down to start the day.
Then FED Governor Waller calmed traders a bit by saying the market is “getting ahead of itself” in terms of a 100 basis point rate hike and expects a 75 basis point hike.
That helped stocks to turn around and claw back off the morning lows with the NASDAQ finishing in the green.
Investors need to remember we are still coming out of a global pandemic which means things are a bit different in this market cycle from past market cycles.
A common idea of a recession was you knew someone who lost their job and a depression was when you lost your job.
This time around the job market is strong and a recession is more like you know someone struggling due to inflation and a depression would be when you struggle from inflation.
In a sign of how tight the job markets is companies in the US in 2023 plan to give workers an average pay raise of 4.1% which would be the largest pay bump since the Great Recession 15 years ago.
The market would rather see a recession happen and have it be deep and short compared to stagflation which would be long and agonizing.
The FED is prepared to drive us into recession in order to combat inflation.
Stock Specific News:
JPMorgan Chase fell 4% after earnings were short of analyst expectations with profits falling 28% after the bank built up cash reserves for potential bad loans.
Morgan Stanley earnings were below analyst expectations hurt by weaker-than-expected investment banking revenue with profits dropping 29%.
Goldman Sachs fell today in sympathy with the poor earnings from JPMorgan and Morgan Stanley, the bank reports its earnings Monday.
First Republic Bank rose today after reporting earnings that beat expectations on both the top and bottom line.
Conagra Brands dropped over 8% after reporting earnings and said sales volume has declined leading to revenue growth coming from sales mix and price increases.
Cisco fell today after being downgraded to neutral at JPMorgan and saying investors should rotate into a “more diversified supplier” such as Juniper Networks.
Costco rose today after getting upgraded to buy at Deutsche Bank and the price target raised to $575 from $525.
Closing Markets (as of 1:15pm PST)
DOW down -0.46%
S&P 500 down -0.30% (3,790.38)
NASDAQ up 0.03%
VIX down -1.75% to 26.35
2 Year Note down -2.78bp to 3.13%
10 Year Note up 2.22bp to 2.96%
Oil down -0.042% to $96.25 a barrel.
Gold down -1.585% to $1708.00 an ounce.
Bitcoin up 4.95% to $20,547.33
Ethereum up 10.87% to $1,189.61
~ Dave James / Principal Trader and Market Strategist