Bank Earnings Kick Off
- Financial Stocks Underwhelm With First Batch Of Earnings
- CPI Report Shows Inflation Slowing
- Crypto Perking Up
Stocks are on track to string together back-to-back weeks of gains to kick off the year; however, Friday is shaping up to be challenging in early trading. As we head into the thick of earnings season in the next couple weeks, I’ll be closely monitoring not only past performance but future outlooks on each company.
Overnight, bank stocks began reporting with mixed results. JP Morgan missed on net interest expectations sending the stock down about 3% in premarket trading but has since recovered in early trading. Wells Fargo WFC missed on revenue projections and that stock is down around 1.5%. Goldman Sachs, scheduled to report next week, preannounced a $3 billion loss in consumer lending which initially had shares looking weak, but have since rallied.
Usually, higher interest rates are a net positive for banks. Thus far; however, the news in this sector is less than optimistic. Of course, this is related to the inverted yield curve and those hoping for financials to really pop, may have to be patient. Meantime, Bank of America BAC is out with a report this morning saying they expect stocks to fall another 10% before rallying later in the year.
The uninspiring earnings this morning comes on the heels of Thursday’s Consumer Price Index (CPI) report. That report shows inflation increasing 6.5%. While that is still well above the Fed’s target rate, it was the sixth consecutive month of slowdowns. If inflation can continue slowing, that would be a great sign not just for consumers but also that the Fed may have achieved what many considered an impossible soft landing.
Elsewhere, the SEC filed suit against two crypto companies. Under a program called, Gemini Earn, Gemini customers were able to lend their crypto assets to Genesis in exchange for a high rate of interest. The practice is often referred to as “yield farming” and allows crypto holders to earn potentially high rates of return in exchange for lending out their assets. In their suit, the SEC alleges the lending program should have been a registered product. This will be an interesting case to watch as it evolves over the next few months as to the future of crypto lending. However, what’s maybe most ironic about this and all the negative news around crypto recently is that Bitcoin BTC has been climbing the last few days and is now trading just above $19 thousand Friday morning.
Much of the rise in crypto assets the last several years may have been a result of stocks being considered fully valued and rates being near zero; so lots of “cheap money” in the system. That made it reasonable for investors to look at other assets as it was difficult for investors to keep putting money into stocks. Therefore, in order to seek sectors where they could achieve decent returns, many turned to crypto. Following the fall in stocks last year, crypto likely lost some of its luster because investors could once again justify buying stocks and we saw rates start to increase. However, since stocks have not been able to find their footing, what we could be seeing is another story of investors looking for alternative places to park funds in hopes of outperforming benchmarks. Once dependable stocks, such as Tesla, which is down another 2% in early trading following an announcement they will be cutting prices on cars in the U.S., are pushing investors to look elsewhere. Crypto may prove to be an interesting beneficiary of markets perceived to be at an extreme both on the high and low end. This is something we will continue to follow closely.
For today, I’m interested to see how stocks ultimately digest these first few earnings announcements. I’m also watching oil which has been flirting with $80 of late. Looking forward to next week, we have more financial firms announcing fourth quarter results and Netflix NFLX will also be out with their earnings. Volatility has been trending lower of late and the VIX is currently below 19. That is a positive sign for stocks. As always, I would stick with your investing plan and long term objectives. Have a great weekend!
tastytrade, Inc. commentary for educational purposes only.
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