The trading day is just about over, but the market action never ends. Julie Hyman and Josh Lipton take investors through the final trading hour of Friday, July 12, on this episode of Market Domination.
Barclays analyst Jason Goldberg joins the program to talk about banking industry trends potentially outlined in this morning’s second quarter earnings out from JPMorgan Chase & Co. (JPM), Citigroup (C), and Wells Fargo (WFC).
F/m Investments CEO Alex Morris discusses his winners and losers for REITs, or real estate investment trusts, in today’s segment of Good Buy or Goodbye.
Other top trending tickers on the Yahoo Finance platform include Deckers Outdoor (DECK), EVgo (EVGO), Tesla (TSLA), Royal Caribbean Cruises (RCL), and AT&T (T) and Snowflake (SNOW) after the telecom company divulged the details of a major data breach from April.
This post was written by Luke Carberry Mogan.
Video Transcript
Hello and welcome to Market Domination.
I’m Julie Hyman.
That’s Josh Flip in live from our New York City headquarters.
We’re giving you the ultimate investing playbook to help tune out the noise and make the right move for your money.
Here’s your headline blitz getting you up to speed one hour before the closing bell rings on Wall Street.
I think I’m the most qualified person to run for president.
I beat him once and I will beat him again.
Unfortunately, we’re talking about how did Biden do, did he flood?
Name a couple of names?
We’re judging him by that.
If you hadn’t had that debate, you hadn’t had that performance.
You hadn’t had the questions about him.
We’d be talking about how deep his understanding is of foreign policy.
The bulk of revenues for most banks is net interest income.
It is, uh, how, you know, your interest income minus, uh, your, your, your interest expense.
And that is, um, that has been under some pressure for banks more recently in recent quarters while we’ve had recession, like readings on consumer sentiment, retail sales while not really sort of hitting it out of the park actually been relatively robust, both on a real and a nominal basis.
So we’re kind of looking skeptically at consumer sentiment numbers.
Now, we’re seeing in a lot of cases, consumers are sensitive to price levels.
But we know inflation has actually been getting a little bit better over the last few months.
So in general, we don’t think that this is, you know, the bottom falling out for the consumer and the consumer is actually going to hold up pretty well.
We got one hour to go until the market close.
So let’s take a look at the major averages here, Josh, because yesterday, you asked the question, the rotation that we were seeing yesterday out of big tech into interest rate-sensitive, would it last?
Story continues
And the answer is not really, but sort of.
So let me explain what I’m saying.
So we’ve got the Dow up right now, almost 450 points more than 1% the S and P up 1.2% and the NASDAQ up 1.4%.
So on the big tech side, we have had those stocks that were, it was just sort of a blip, they back up again.
But the breath is still there, which is interesting.
In other words, the equal weight index and the S and P 500 are neck and neck today, the small caps are also keeping pace.
So it’s not so much that the rotation is stopped, but maybe one side, it’s not a rotation anymore if it’s not going around.
But in other words, people are buying tech again, but they’re still also buying.
That was what’s so interesting.
All the other stuff you could have, NVIDIA is working today again.
A nice move.
But to your point, small caps are also moving higher again.
So it is, it’s just an interesting, you’re right.
I mean, you wouldn’t call it the rotation, but it is just maybe a sign that this bull market broadening in some way, you know, that’s what everybody’s been waiting for.
Right.
So today you’ve got, um, actually consumer discretionary, that’s the best performing group, but it’s followed up by tech.
But let’s also talk about the big earnings story of the day here.
I’m just glancing down on my list here to find our big banks and here they are because we’ve got them reporting today.
JP Morgan Wells Fargo as well as Citigroup over here.
All reporting all down.
Yeah, I mean, uh, you know, to be fair if you pulled back the chart and you know, this Juliette, like a lot of these names had some nice runs into these prints.
Let’s take a look at Jack Morgan is an example of, right.
I mean, if you pull your to date about 20% about, you know, 40% I think over the last 12 months or so.
I mean, so investors, plenty of investors have thought, you know what, um, economy is decent rate cuts are coming.
Maybe those restrictive regulatory proposals won’t be so restrictive.
So they moved in.
So you do wanna how much of this also is kind of expectations games playing out as well?
Yeah, most certainly.
However, it does seem that the theme that we were talking about initially yesterday with some very different types of companies namely Pepsi Can, Agra and Delta about consumer weakness that is also playing out when it comes to the banks here.
And so we are seeing lending activity, we are seeing uh credit card, uh you know, charge-offs and things like that.
That’s something that is getting more attention from some of these banks, even as the capital markets business that includes the markets, that includes some deal-making activity that’s starting to perk up again.
That did ok for the banks, but it’s their sort of bread and butter that is not necessarily doing as well.
Another point too, you know, sometimes Julie, you’ll hear people talk about big banks as if they’re kind of like a bellwether for how the market’s gonna perform during the rest of the earnings season.
Now bespoke Paul Hickey, a true market guru uh says that is not true and we are gonna talk to Paul later in the show, find out why that is, yes, it should be interesting to see if others are gonna follow in the same thing.
All right, for more on what to watch this earnings season.
Let’s welcome in now, Eric Friedman, he is the chief investment officer at us Bank Asset Management Group.
Eric, it’s good to see you.
So you heard Julie and I were just talking about the big banks, Eric, you, you saw those earnings report just broadly Eric, I’m interested to get your take on just what you made of those reports and any broader kind of takeaways you think uh for the market there, Eric.
Yeah, Josh, thanks so much for having us on and, and I work for a big bank so I can’t get too much into the specifics.
But I’ll just say this, I think one of the things that really, yeah, underscores our bullish thesis is the idea that the consumer is still hanging in there.
You did a good job of covering that in the prior segment.
That’s what we actually heard from these earnings or the consumers are still in fact outspending.
Again, there’s a difference, there’s a divergence across the different cohorts of consumer spending.
But in general, you’re still seeing real incomes get in uh uh inflated inflation adjusted, still hanging in there.
So that says to us that there’s still a good backdrop for consumer spending.
One of the reasons why we think corporate earnings cycle profits will continue and certainly keeps us bullish in the near term.
And Eric, um what does it look like in terms of that bread?
You know, we’ve been talking going into this earnings season, not just about breadth of performance, stock performance, but about breadth of earnings performance.
And we’re very, very early.
We’ve heard just not just from the banks, but as I mentioned, a couple of consumer staples stocks.
So are we gonna get that breadth of earnings growth from other companies?
Yeah, it’s a great question, Julie.
I think that it’s probably early, at least for this quarter to see it really fanning out.
But the great thing about markets is that we anticipate before it happens, at least we try to anticipate before it happens.
So part of our thinking again, we’ve been actually overweight stocks through equal weight and that’s uh that’s a long way of saying that we think the large caps where you wanna be, we wanna be exposed to those sectors that actually have not performed as well.
But also don’t have as much refinancing risk of small caps or have a better profitability projection.
So that’s been really one of our key thesis has been this idea that equal weight will be a good place to add value that has played out over the last couple of days.
But it’s been a pretty slow ride uh since we put it on in late uh late April.
So bottom line is that, you know, for our general thinking that earnings are, are still in a decent spot in terms of spending will probably come in a little bit.
But again, on a real basis, you’re still seeing incomes that are positive.
So I, I think that if you look at sectors that we really like in terms of areas that are more attractive to us, things like energy, uh things like consumer discretion, or we still like tech, we would be at the very least uh market weight technology within again, the fundamentals of A I are still there, that’s going to continue to broaden out.
But there should be, again, a premium placed on companies that don’t have as much refinancing risk and still have decent earnings.
Eric, I just want to get your take on small C because they’re higher here.
Again, I’m just curious, Eric, you know why you think um they’re higher, why investors have moved in at this moment?
Is it because they have investors, you know, they’ve decided, ok, the economy is decent and, and cuts are on the way and, and that’s good enough to, to move into those pint-sized companies.
Yeah, Josh, I think really the biggest variable driving small cap right now is because interest rates are coming down.
And if you think about the data we got this week, again, your team always does a great job of thinking about and mapping out the week ahead of the week, that’s just happened.
So the consumer price index data yesterday, they produce the producer price index data today.
Those are both relatively benign and it actually was a pull forward and rate cut expectations.
You have to keep in mind that even though people, I only don’t think of it this way that small caps, about 30% of small caps are actually debt financed.
And, and so if you look at, at what that means is that, hey, these are companies that don’t have as diversified revenues as either a mid cap or a, or a large cap stock.
And so they’re very dependent on a product, like they’re also very dependent on interest rates coming down to get their cost of capital lower.
So what that really means is that as you have a pull forward an expectation for rate cuts, that’s more bullish for small caps because of their reliance on debt.
Most people think that small caps are mostly equity finance, they’re not, there’s a lot of debt uh contingency on small caps.
That’s why they’re doing so well.
Um Eric, there’s been a lot of talk about with interest rates where they are.
A lot of people are in cash right now or the equivalent of cash, what is the trigger that might get them back into the market?
And is that gonna be, you know, sort of a, an underpinning for stocks for this year?
Yeah, Julie, I think it’s an important focal point.
It’s something that we see a lot with our client base that clients again are almost nostalgic for uh for higher rates in, in their, their, the cash part of their portfolios.
The same thing that I think will get things, you know, shifted back into a broader allocation of the stocks and bonds and, and alternatives is, is just probably the front end coming down.
People tend to be pretty hesitant to move out of cash, they tend to be, again, more focused on, on, on current yield and that’s something that we think is gonna probably change, especially as we start to see that broadening of participation increase, which again, we’re positioned for in our portfolios.
But that would be the other thing that really gets people to think, hey, it’s not just tech, it’s not just com services, it’s not just um you know, discretionary, but other things are working.
It’s time for me to come out and, and get involved.
That could be the catalyst that we see uh draws people away from cash Eric.
Thanks so much.
Appreciate it.
Have a great weekend.
Yeah, do the same.
Thanks for having me.
We’re just getting started here on market domination.
Coming up.
AT&T has said that a hacker stole records of calls and texts from nearly all of AT&T wireless customers.
We’ll have more details on that and the fallout when market domination continues, a complicated start to earning season for the bank shares of JP Morgan.
Wells Fargo and Citigroup are all under pressure after their numbers, Wells Fargo second quarter profit declining from a year ago While JP Morgan and City beat estimates concerns over net interest income has been weighing on those stocks and joining us.
Now, Jason Goldberg, Barclay, senior equity analyst, Jason
