Dow: 13,329, +2 (+0.02%) S&P 500: 1,429, -4 (-0.30%)
You don’t need to immerse yourself in a 12-hour Grey’s Anatomy marathon on Bravo to know investors need to stop the bleeding (for the record, if you have 12 hours in front of a TV, start watching Homeland immediately). This week’s been bad. Like Voldemort bad. Blue chip stocks have fallen every trading session this week and today the Dow only eked out a paltry 2-point gain. Mixed earnings reports from 2 of the nation’s biggest banks pulled financial stocks down, while a surprisingly positive consumer sentiment poll helped lift consumer-staple stocks. In the end, investors saw the glass half empty and most stocks in the S&P 500 stock index fell.
Wells Fargo earnings highlight shrinking profitability of American banks
The fear with banks these days is that interest rates (the rate for lending $) are so freaking low, that they won’t be able to make money like they used to. There is so much money out there (due in part to quantitative easing) but not real demand for it in the form of loans since economic growth is slow, so banks are having trouble making money on loans. Exhibit A: Wells Fargo (WFC). The West Coast giant bank announced earnings slightly better than estimates, but their net interest margin (the average interest rate they make on loans) dropped from 3.88% last year to 3.66 % this year, and that’s just too low. This fundamental issue in American banking knocked Wells down over 2.5% today and dragged down all the others, JPM included…
JP Morgan defies investors once again, still falls due to banking industry fears
…Speaking of which, JPMorgan (JPM) is laughing at the masses of analysts who estimated $1.20 earnings per share. Boom, $1.40 per share for the third quarter. The giant Park Avenue investment bank squashed doubters in Q1 and Q2 when they beat profit expectations despite the “London Whale” $6 billion trading blunders, then this morning Jamie “the Boss” Dimon announced Q3 earnings were up 36% compared to last year. Will stock pickers be as impressed by JPM stock as we are of Dimon’s tailored suit? apparently not. JPM was dragged down over 1% because of banking industry fears.
Housing market’s back, baby – bulk of JPM and Wells revenues related to new home mortgages
JPM’s boost this quarter is actually for reasons that we can all be happy about – an improvement in the housing market. JPM made more cash because more people are buying houses, meaning not just mortgage related revenues for JPM, but also your home’s value is finally going up again! Jamie Dimon announced that the housing market has turned around since the horrible housing collapse of 07-early ’12. Low interest rates may be causing bank profits to drop overall, but they’re helping more people buy homes…a trade off we’ll take any day.
Reuters/University of Michigan Consumer Sentiment poll reaches highest level in 5 years
The twice-monthly Reuters/University of Michigan Consumer Survey questions 500 households on how they feel about the US economy. After dipping slightly last month, positive responses rocketed up in the 1st half of October to their highest level since September ’07 (on the survey’s numerical index, for our quantitative friends, the jump was from a 78.3 up to 83.1). Huge. Economists had expected the reading to decline, but September’s positive employment report (unemployment fell to 7.8%), yesterday’s weekly jobless claims drop and the recent consistency of gas & food prices simply put smiles on people’s faces. The confidence boost, at a level usually reserved for erectile dysfunction, helped consumer staple stocks (companies whose products are necessary for consumers) like Kraft (KFT), Kellogg (K) and Wal-Mart (WMT) all gain.
- The 3rd quarter earnings season kicks into another gear baby: Microsoft, Google, Morgan Stanley, Coca-Cola, IBM…
- Also look for a 2-day policy meeting among the Eurozone leaders and a taste of US housing data
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