Bank stocks started the earnings season with some less than stellar numbers on Friday. (Photo of … [+]
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The central theses
- Financial stocks overwhelm with early gains
- The CPI report shows a slowdown in inflation
- crypto cheer
Stocks are on track to string weeks of gains into the year; However, Friday is shaping up to be challenging in early trading. As we move into earnings season over the next few weeks, I’ll be keeping a close eye on not only past performance but also the future prospects for each company.
Overnight, bank stocks began reporting mixed results. JP Morgan missed net interest rate expectations, sending the stock down about 3% in premarket trading, but has since rallied in early trading. Wells FargoWFC missed revenue guidance and this stock is down about 1.5%. Goldman Sachs, due to report next week, announced a loss of $3 billion in advance.
Typically, higher interest rates are net positive for banks. So far; However, the news in this sector is far from optimistic. This, of course, is related to the inverted yield curve, and those hoping for a real explosion in financial stocks may have to wait. Meanwhile, Bank of AmericaBAC issued a report this morning saying they expect shares to fall another 10% before recovering later in the year.
This morning’s uninspiring gains follow Thursday’s Consumer Price Index (CPI) report. This report shows that inflation has increased by 6.5%. While that’s still well above the Fed’s target rate, it was the sixth straight month of slowdowns. If inflation can slow further, it would not only bode well for consumers, but also that the Fed may have achieved what many thought was an impossible soft landing.
Elsewhere, the SEC filed lawsuits against two crypto companies. A program called Gemini Earn allowed Gemini clients to lend their crypto assets to Genesis for a high interest rate. Often referred to as “yield farming,” this practice allows crypto holders to earn potentially high returns in exchange for lending their wealth. In its lawsuit, the SEC alleges that the lending program should have been a registered product. This will be an interesting case to develop further in the coming months regarding the future of crypto lending. However, what is perhaps most ironic about this and all the negative news surrounding crypto lately is that BitcoinBTC has been rising for the past few days and is now trading just above $19,000 as of Friday morning.
Much of the surge in crypto assets over the past few years could be due to stocks being considered fully valued and interest rates near zero; so a lot of “cheap money” in the system. That made it prudent for investors to look at other assets, since it was difficult for investors to keep putting money into stocks. As a result, many turned to crypto in search of sectors where they could earn decent returns. After last year’s fall in share prices, crypto has likely lost some of its luster as investors regained the justification for buying shares and we saw interest rates start to rise. However, since stocks have not been able to gain traction, we could see a different story of investors looking for alternative places to park funds in hopes of outperforming benchmarks. Once-reliable stocks like Tesla, which fell another 2% in early trade after announcing it would cut U.S. car prices, are urging investors to look elsewhere. Crypto could prove to be an interesting beneficiary of markets that are perceived as extreme on both the high and low end. We will continue to monitor this closely.
For today, I’m excited to see how stocks ultimately digest these early earnings reports. I’m also watching oil, which has been flirting with $80 lately. We look forward to next week when more financial companies report fourth quarter results, and NetflixNFLX will also report earnings. Volatility has been trending down lately and the VIX is currently below 19. This is a positive sign for equities. As always, I would stick with your investment plan and long-term goals. Have a nice weekend!
delicioustrade, Inc. commentary is for educational purposes only.
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