HI Market View Commentary 01-17-2023
IF you noticed BIDU was down 6% today
That it is my belief that the reopening of China has huge implications on the global markets
We spent $ and this morning I heard on CNBC possibly as much as 2 trillion is available to be spent by the middle class in China
He reopening of the businesses sends more product internationally
IN our favor we have something in relation to the Market (S&P500)= The market valuation is inline or cheaper than its been for years
Earnings estimate are way lower than expected ie… go look AMZN, GOOGL compared to last year
EARNINGS will be king and companies have to earn their earnings = Is wont fly to just buy back shares
Three more rate hikes = Probably will be 50 basis points but could be three quarter point (25) rate hikes
Jan/Feb 31-1, March 21-22, May 2-3
Earnings dates:
AAPL – 2/02 AMC
BA – 1/25 BMO
BAC – 1/13 BM0
BIDU – 3/01
DIS – 2/08 AMC
F – 2/02 AMC
GOOGL – 2/02 AMC
JPM – 1/13 BMO
LMT – 1/24 BMO
META – 2/01 AMC
MU – 3/29
SQ – 2/23 AMC
UAA – 2/02
USB – 1/25 BMO
V – 1/26 AMC
VZ – 1/24 BMO
https://www.briefing.com/the-big-picture
Earnings are the crux of the market matter in 2023
The losses the stock market suffered in 2022 had a lot to do with the Federal Reserve raising interest rates. The thinking was that the higher rates would adversely impact economic growth, and, consequently, earnings growth.
With earnings prospects in question, equity valuations were also called into question and the universal judgment was that stocks were overvalued. That judgment sentenced stocks to a lot of selling pressure — some more than others — and led to the stock market’s worst performance since 2008.
The initial struggles in 2022 were rooted in the understanding that the Fed’s easy monetary policy was ending. In effect, the reality hit home that the party seen in 2021 was over, animal spirits would be killed, and valuations would matter again.
As 2022 progressed, though, the forward-looking stock market wasn’t concerned so much with how much earnings growth would slow in 2022 as it was with how much earnings growth would slow in 2023.
With the fourth quarter earnings reporting period unfolding over the next several weeks, we will soon have some answers.
Estimate Cuts
We don’t want to say that the fourth quarter results are inconsequential, yet they will take a distant backseat to the guidance that accompanies the fourth quarter reports.
Not all companies issue specific guidance, but with concerns about a possible recession in 2023 running high, qualitative remarks about the demand outlook will resonate as much as any quantitative guidance that is provided.
Overall, S&P 500 earnings were expected as of January 6 to decline 4.1% year-over-year, according to FactSet. The blended growth rate, which accounts for companies that have reported and estimates for companies that have not, currently stands at -4.8%.
We know from FactSet that analysts were slashing their fourth quarter earnings estimates in front of the reporting period. Analysts typically cut their estimates as a quarter progresses, but this year the cuts were larger than usual.
The fourth quarter bottom-up EPS estimate decreased by 6.5% between September 30 and December 31. During the past five years, the average decline in the bottom-up EPS estimate during a quarter has been 2.5%, according to FactSet.
What the market knows going into the reports, then, is that the earnings bar has been lowered quite a bit, making it easier per chance for companies to report better-than-expected fourth quarter results.
Feeling Confident?
The banks will get things going on the earnings reporting front. They don’t provide specific EPS or revenue guidance, but they generally have plenty to say about what they are seeing in terms of loan demand, credit quality trends, and general economic conditions.
Market participants will be paying close attention to what the banks are saying about credit quality and what they are accounting for in terms of loan loss reserves relative to their loan base. The banks will set the tone early with respect to the market’s understanding of economic conditions before giving way to the industrial, consumer staples, consumer discretionary, and technology companies that typically provide specific EPS and/or revenue guidance.
One issue yet to be settled is how confident companies will be projecting full-year guidance. The degree of confidence, we suppose, will be reflected in the width of guidance ranges.
In any case, we also know from FactSet that earnings estimates for calendar 2023 have been cut from just north of $250.00 in the middle of 2022 to $228.28 today. The latter represents an expected 4.9% increase over the calendar 2022 estimate of $217.73, which has also come down markedly since the middle of 2022.
What It All Means
These estimates are the crux of the market matter as we move into 2023. Currently, the S&P 500 trades at 17.5x calendar 2023 estimates, which can be looked upon at this juncture as forward 12-month estimates. The 10-yr historical average is 17.2.
The inference is that the market is trading at a slight premium to its historical average multiple before the economy is feeling the brunt of the Fed’s rate hikes. To that end, the Atlanta Fed GDPNow model estimates Q4 real GDP growth will be 4.1% on an annualized basis.
The downward revision to 2023 earnings estimates, though, reflects an understanding that the long and variable lags of the Fed’s rate hikes will take more of a toll as 2023 progresses, particularly since the Fed seems intent on wanting to see more weakness in the labor market.
The deeply inverted yield curve suggests there will be some notable economic weakness in the future, the timing and severity of which remain open for debate. The severity factor ranges from little growth to a mild recession (i.e., a soft landing) to a full-blown recession (i.e., a hard landing).
An environment of little growth would fit within the confines of the current calendar 2023 earnings estimate. In that case, one could say the market is fairly valued at its current level.
If there is a mild recession, earnings would presumably decline 1-10% from 2022, leaving the market somewhat overvalued at its current level.
And if there is a hard landing, earnings would presumably decline more than 10% from 2022, leaving the market decidedly overvalued at its current level.
There is a lot riding on the fourth quarter earnings reporting period. Market participants will start to understand if the cut to 2023 earnings estimates since the middle of 2022 is just right, too much, or not enough.
Regardless, there will be valuation constraints in 2023 because 2022 taught everyone again that valuation matters.
We are not starting 2023 with an earnings multiple that is too high or too low. We are starting just above average in front of an earnings reporting period that is expected to be below average and with an economy that is expected to weaken noticeably, meaning multiple expansion and big gains this year won’t be easy to achieve at the index level if the earnings guidance surprises are more negative than positive.
—Patrick J. O’Hare, Briefing.com
https://go.ycharts.com/weekly-pulse
| Market Recap |
| WEEK OF JAN. 9 THROUGH JAN. 13, 2023 |
| The S&P 500 index rose 2.7% last week as investors grew hopeful for Federal Reserve officials to slow their pace of rate increases after data showed US consumer price inflation eased last month.
The market benchmark ended Friday’s session at 3,999.09, up from last Friday’s closing level of 3,895.08. The index is now up 4.2% for the year to date but down 14% from a year ago. The week’s climb came as hopes ramped up for the Fed’s Federal Open Market Committee to raise the central bank’s key lending rate by just 0.25 percentage point at its next meeting; this would be a slowdown from the 0.50 percentage point increase made at its December meeting and increases of 0.75 percentage point each made at previous meetings in 2022. The next meeting is scheduled for Jan. 31 through Feb. 1. The hopes for a slower pace of rate increases came as data showed the US consumer price index rose 6.5% year over year in December, having pared from a year-over-year increase of 7.1% in November and a peak increase of 9.1% in June. The core US consumer price index, which excludes food and energy prices, rose 5.7% year over year in December, down from a 6% increase in November. While investors found the slowing pace of consumer price increases encouraging, they continue to worry about how much higher rates will have to climb to combat price growth as inflation remains well above the Fed’s target of just 2%. Underscoring investors’ concerns about the Fed’s rate increases, several big banks on Friday noted they are setting aside money to prepare for a possible recession. Among them, JPMorgan Chase (JPM) reported Q4 per-share earnings and revenue above analysts’ mean estimates but said it is preparing for a “mild recession.” By sector, consumer discretionary had the largest percentage increase last week, up 5.8%, followed by a 4.6% rise in technology and a 4.4% boost in real estate. Just two sectors were in the red for the week: Consumer staples fell 1.5% and health care edged down 0.2%. Cruise operators led the gainers in the consumer discretionary sector. Shares of Norwegian Cruise Line Holdings (NCLH) jumped 20% on the week while Royal Caribbean Cruises (RCL) climbed 15% and Carnival (CCL) added 14%. In the technology sector, shares of First Solar (FSLR) rose 15% as the company said it closed its sale of the 141-megawatt Luz del Norte solar power plant in Copiapo, Chile, to asset manager Toesca. Morgan Stanley raised its price target on the stock to $194 per share from $146. The gainers in real estate included Equinix (EQIX) and Extra Space Storage (EXR) as the stocks received positive analyst actions. Shares of Equinix rose 7.1% for the week as Goldman Sachs raised its price target on the stock to $775 each from $680 while keeping its investment rating on the stock at buy. Shares of Extra Space Storage (EXR) climbed 5.5% as Raymond James upgraded its investment rating on the stock to outperform from market perform. On the downside, the decliners in consumer staples were led by food products companies. Shares of McCormick (MKC) fell 6% while JM Smucker (SJM) shares slipped 5%, General Mills (GIS) shares lost 4% and Campbell Soup (CPB) shares shed 3.6%. Next week, the US stock market will be closed on Monday for Martin Luther King Jr. Day. Data expected later in the week include retail sales and the producer price index for December on Wednesday, December building permits and housing starts on Thursday, and December existing home sales on Friday. The Q4 earnings reporting season will also move into full swing. Companies expected to release quarterly results next week include Morgan Stanley (MS), Goldman Sachs (GS), United Airlines (UAL), Charles Schwab (SCHW), Alcoa (AA), Procter & Gamble (PG), Netflix (NFLX) and Schlumberger (SLB). Provided by MT Newswires |
Where will our markets end this week?
Higher
DJIA – Bullish
SPX –Bullish
COMP – Bullish
Where Will the SPX end January 2023?
01-17-2023 -2.0%
01-09-2023 -4.0%
Earnings:
Mon:
Tues: GS, MS, IBKR, UAL
Wed: SCHW, AA, DFS, FHN, FUL, KMI
Thur: FAST, KEY, PG, NFLX
Fri: SLB
Econ Reports:
Mon:
Tue Empire Manufacturing
Wed: MBA, PPI, Core PPI, NAHB Housing Price Index, Retail Sales, Retail ex-auto, Fed Beige Book, Industrial Production, Capacity Utilization, Business Inventories,
Thur: Initial Claims, Continuing Claims, Housing Starts, Building Permits, Phil Fed
Fri: Existing Home Sales, Monthly Options Expire
How am I looking to trade?
Currently running mostly stocks without protection but getting ready for earning by protective puts and full collar trades
www.myhurleyinvestment.com = Blogsite
info@hurleyinvestments.com = Email
Questions???
Powell says Fed might have to make unpopular decisions to stabilize prices
PUBLISHED TUE, JAN 10 20239:00 AM ESTUPDATED TUE, JAN 10 20238:47 PM EST
Jeff Cox@JEFF.COX.7528@JEFFCOXCNBCCOM
KEY POINTS
- Fed Chairman Jerome Powell noted that stabilizing prices requires making tough decisions that can be unpopular politically.
- In other remarks, the central bank leader said the Fed is “not, and will not be, a ‘climate policymaker.’”
Federal Reserve Chairman Jerome Powell on Tuesday emphasized the need for the central bank to be free of political influence while it tackles persistently high inflation.
In a speech delivered to Sweden’s Riksbank, Powell noted that stabilizing prices requires making tough decisions that can be unpopular politically.
“Price stability is the bedrock of a healthy economy and provides the public with immeasurable benefits over time. But restoring price stability when inflation is high can require measures that are not popular in the short term as we raise interest rates to slow the economy,” the chairman said in prepared remarks.
“The absence of direct political control over our decisions allows us to take these necessary measures without considering short-term political factors,” he added.
Powell’s remarks came at a forum to discuss central bank independence and were to be followed by a question-and-answer session.
The speech did not contain any direct clues about where policy is headed for a Fed that raised interest rates seven times in 2022, for a total of 4.25 percentage points, and has indicated that more increases likely are on the way this year.
While criticism of Fed actions by elected leaders is often done in quieter tones, the Powell Fed has faced vocal opposition from both sides of the political aisle.
Former President Donald Trump ripped the central bank when it was raising rates during his administration, while progressive leaders such as Sen. Elizabeth Warren, D-Mass., have criticized the current round of hikes. President Joe Biden has largely resisted commenting on Fed moves while noting that it is primarily the central bank’s responsibility to tackle inflation.
Powell has repeatedly said that political factors have not weighed on his actions.
In another part of Tuesday’s speech, he addressed calls from some lawmakers for the Fed to use its regulatory powers to address climate change. Powell noted that the Fed should “stick to our knitting and not wander off to pursue perceived social benefits that are not tightly linked to our statutory goals and authorities.”
While the Fed has asked big banks to examine their financial readiness in case of major climate-related events such as hurricanes and floods, Powell said that’s as far as it should go.
“Decisions about policies to directly address climate change should be made by the elected branches of government and thus reflect the public’s will as expressed through elections,” he said. “But without explicit congressional legislation, it would be inappropriate for us to use our monetary policy or supervisory tools to promote a greener economy or to achieve other climate-based goals. We are not, and will not be, a ‘climate policymaker.’”
The Fed this year will launch a pilot program that calls for the nation’s six biggest banks to take part in a “scenario analysis” aimed at testing institutions’ stability in the event of major climate events.
The exercise will take place apart from the so-called stress tests that the Fed uses to test how banks would fare under hypothetical economic downturns. Participating institutions are Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo.
https://www.dailywire.com/news/some-consumers-financed-holiday-spending-with-record-amounts-of-debt
Some Consumers Financed Holiday Spending With Record Amounts Of Debt
By Ben Zeisloft
Jan 9, 2023 DailyWire.com
Record spending during the holiday season coincided with many American households making expenditures using record amounts of debt.
Though a slightly lower proportion of Americans took on holiday debt at the end of last year, the average amount of debt among those who spent beyond their means rose to $1,549, marking a 24% increase from the previous year, according to a survey from LendingTree. The percentage of debtors who expect to take five months or more to pay off their debt rose from 28% to 37%.
“A year ago, this survey showed the first decrease in average holiday debt since tracking began in 2015,” the online lending marketplace said. “However, following a year of rising prices, seven interest rate hikes from the Federal Reserve to drive credit card interest rates to record levels and overall economic uncertainty, a second-straight decrease wasn’t in the cards. Instead, we got the biggest dollar increase in the eight-year history of this report.”
Parents with minor children, those earning between $50,000 and $100,000, and millennials between the ages of 26 and 41 were the most likely to use debt to finance their holiday spending. Although most Americans still financed their holiday consumer debt through credit cards, the portion of households borrowing from friends and family surged.
News of record debt among some shoppers came after a shopping season that appears to have exceeded previous years. Some 196.7 million Americans shopped online and in person during the five days between Thanksgiving and Cyber Monday, according to data released by the National Retail Federation, shattering the trade association’s initial projection of 166.3 million shoppers during the first weekend of the season. The organization had previously forecasted that holiday spending would grow between 6% and 8% from the previous year even as inflationary pressures eroded the purchasing power of households.
“While consumers are feeling the pressure of inflation and higher prices, and while there is continued stratification with consumer spending and behavior among households at different income levels, consumers remain resilient and continue to engage in commerce,” National Retail Federation CEO Matthew Shay said in a press release. “In the face of these challenges, many households will supplement spending with savings and credit to provide a cushion and result in a positive holiday season.”
Households have been increasingly reliant upon debt amid elevated price pressures. The total level of consumer loans increased from $1.5 trillion at the beginning of President Joe Biden’s tenure to $1.8 trillion as of two months ago, according to data from the Federal Reserve. The personal savings rate has dropped from 20% to less than 3% over the same period, according to data from the Bureau of Economic Analysis, marking a significant decline from rates witnessed before the lockdown-induced recession.
The global economy has experienced lackluster performance since public health mandates ended across the world. Most analysts believe this year will see a recession in the United States, a reality that would follow one of the worst stock market performances in modern history last year, while some are more optimistic. Bank of America Chief Investment Strategist Michael Hartnett said in a report that a recession will strike in the first half of the year before markets attain a “much more solid footing,” while an outlook from Goldman Sachs Chief Economist Jan Hatzius noted that analysts at the company believe the economy will “stick a soft landing.”
This has been a bad sign for stocks historically — when there’s a big gap between how companies and the government measure profits
Last Updated: Jan. 11, 2023 at 8:34 a.m. ETFirst Published: Jan. 11, 2023 at 6:43 a.m. ET
Steve Goldstein
Earnings season is just around the corner. But as investors prepare for the onslaught, it’s worth noting that there are two ways to measure corporate profitability.
Major business news publications like MarketWatch highlight reported financial results. But the U.S. government measures profitability differently, drawing on data from corporate tax returns. And while the two usually move hand-in-hand, that’s not always the case, owing to issues like the prevalence of stock options for employee compensation (excluded from company reports) and how quickly assets get depreciated (faster under the government’s methodology).
And right now, the gap between S&P 500 operating earnings is 25% above what the government is reporting, according to Michael Darda, chief economist and market strategist at MKM Partners. That’s not a good sign.
“The record divergence between S&P 500 operating earnings and after-tax [National Income and Product Accounts] profits from the GDP accounts during the year 2000 was a critical harbinger for a broader earnings recession, corporate accounting shenanigans, and a nearly three-year bear market,” he notes. There also was a divergence, though less severe, before the 2007 to 2009 stock-market plunge.
MKM/BLOOMBERG
That divergence is seen in this chart, which deserves a little explanation. To compare the two, he indexed S&P 500 operating earnings per share and corporate profit data, back to the end of 1993. (This author, using different sources, got similar but slightly different results.)
Darda more broadly says that the rapid rate hikes from the Federal Reserve means “it is virtually impossible to get to neutral without surpassing it, veering policy from too accommodative to too restrictive.”
Right now Fed officials are putting too much emphasis on service sector inflation, which actually is a component of the Conference Board’s index of lagging economic indicators. “That means there will be a long lag between the tightening of monetary conditions and the impact on slow-moving price level variables, especially those tied to contracts and leases. This virtually assures that there will be a potentially substantial over-tightening of monetary conditions and the risk of a more severe downturn than is currently envisaged,” says Darda.
The markets
U.S. stock futures ES00, -0.01% NQ00, 0.16% were a touch higher in the early going. Copper HG00, 0.18% was trading around six-month highs.
For more market updates plus actionable trade ideas for stocks, options and crypto, subscribe to MarketDiem by Investor’s Business Daily.
The buzz
On the economics front, it’s the lull before the storm — no data releases or Fed officials due to speak ahead of Thursday’s release of the consumer price index.
The chart
MAN INSTITUTE
Adi Mackic, senior client portfolio manager at Man AHL, posted this chart, comparing traditional 60/40 model drawdowns to those when investors allocated half toward 60/40, and another half toward trend strategies.
There are two takeaways — one is the defensive qualities of trend models, which performed well last year even as both stock and bond performance tanked. Another is that trend models that rely on “fast” speeds — defined as between four and seven weeks — tend to do better than models going slow, between 20 and 24 weeks.
“The intuition here is that faster models truncate losses quickly when a trend reverses, cutting off that left tail, while still allowing profits to run,” he says.
Should You Hold Baidu Inc (BIDU) Stock Tuesday Morning?
Tuesday, January 17, 2023 08:26 AM | InvestorsObserver Analysts
Baidu Inc (BIDU) has fallen Tuesday morning, with the stock losing -2.61% in pre-market trading to 135.35. BIDU’s short-term technical score of 72 indicates that the stock has traded more bullishly over the last month than 72% of stocks on the market. In the Internet Content & Information industry, which ranks 116 out of 146 industries, BIDU ranks higher than 76% of stocks. Baidu Inc has risen 23.44% over the past month, closing at $108.11 on December 20. During this period of time, the stock fell as low as $108.11 and as high as $139.03. BIDU has an average analyst recommendation of Strong Buy. The company has an average price target of $181.43.
BIDU has an Overall Score of 63. Find out what this means to you and get the rest of the rankings on BIDU!
Baidu Inc has a Long-Term Technical rank of 50. This means that trading over the last 200 trading days has placed the company in the middle with 50% of the market scoring higher. In the Internet Content & Information industry which is number 95 by this metric, BIDU ranks better than 95% of stocks.
Important Dates for Investors in BIDU:
-Baidu Inc is set to release earnings on 3/7/2023. Over the last 12 months, the company has reported EPS of $12.80. -We do not have a set dividend date for Baidu Inc at this time
Stock-market rally looks ‘unsustainable’ as S&P 500 enters ‘new, lower valuation regime,’ warns Citi
Published: Jan. 17, 2023 at 1:30 p.m. ET
‘We suspect valuation could put a near-term cap on upside momentum,’ Citi analysts say
The S&P 500 index has rallied this month, up 4.2% through Jan. 13, after last year suffering its biggest losses since 2008.
This year’s stock-market rally has pushed the S&P 500 index to valuation levels that make it difficult for the index to climb much higher based on the current macroeconomic environment, according to Citigroup Inc.
The S&P 500’s trailing price-to-earnings ratio is back to 18.2x, “dangerously close to the upper end of our fair value range,” Citi analysts said in a research report dated Jan 13. “We are comfortable with a 3700-4000 S&P 500 trading range call for now.”
U.S. stocks have rallied so far this month, with S&P 500 up 4.2% through Friday, as investors headed into a three-day weekend honoring Martin Luther King Jr. On Tuesday afternoon, the index SPX, -0.20% was trading down 0.1% at around 3,994, according to FactSet data, at last check.
“For now, we suspect valuation could put a near-term cap on upside momentum,” the Citi analysts said. “Based on our fair value framework, valuations much above current levels are unsustainable unless there is a significant change in the macro backdrop.”
In Citi’s view, the S&P 500 is entering “a new, lower valuation regime” compared with the period seen since the global financial crisis of 2008.
“This implies index gains in this new environment will need to be ‘earned’ vis-à-vis near- and medium-term fundamental improvement, less so from macro tailwinds behind multiple re-rating triggered by lower interest rates,” the analysts wrote.
Citi’s fair value framework implies an S&P 500 price-to earnings multiple of 18.5x at the high end based on current rates and other “macro inputs” such as inflation and growth, according to the report.
“18-19x is pushing the fair value limits unless we get a more aggressive slowing in inflation, noticeably lower rates, coupled with other more sanguine macro readouts,” the analysts said.
The chart below shows Citi’s fair value range for the S&P 500 versus the index’s trailing price-to-earnings multiples since 2021.
CITI RESEARCH NOTE DATED JAN. 13, 2023
Pointing to recent client conversations, Citi analysts said there’s “very little conviction that interest rates are poised to fall much further below current levels.” That’s “aligned with a view that the Fed is unlikely to move from hawkish to dovish over any shorter time frame.”
The Federal Reserve has been rapidly raising interest rates to combat high inflation, with many investors expecting the Fed to potentially pause its rate hikes this year as the elevated cost of living in the U.S. shows signs of easing.
As rates rose last year, the S&P 500 tanked 19.4% in its worst performance since 2008.
“We are left with conviction in our ongoing view that rate-driven valuation headwinds may persist, implying greater importance on earnings trajectories,” the Citi analysts said.
“Sell-side consensus seems coalescing around a weak first half, strong second half narrative,” they wrote. “We are more constructive on the second half like many of our peers, but we do not see the same downside pressure to earnings, and upside lift from valuations that others expect.”
The analysts said that “this could hinder upside momentum” based on their expectation for a decline this year in the S&P 500’s earnings per share.
U.S. stocks were trading mixed Tuesday afternoon as investors digested fourth-quarter earnings results from Goldman Sachs Group Inc. GS, -6.44% and Morgan Stanley. Morgan Stanley MS, +5.91%, which beat earnings estimates, was the top performer in the S&P 500 on Tuesday afternoon with a gain of more than 7%, according to FactSet data, at last check.
As for other major U.S. stock-market benchmarks, the technology-heavy Nasdaq Composite COMP, +0.14% was up 0.1% in Tuesday afternoon trading while the Dow Jones Industrial Average DJIA, -1.14% fell 1.1%, according to FactSet data, at last check.
“We estimate that 28% of the current S&P 500 value is based on future earnings growth, which is in line with longer-term averages,” the Citi analysts said. “We suspect earnings will be more resilient than feared.”
While Citi’s year-end target of 4,000 for the S&P 500 is below the median strategist expectation, its estimate for the index to see earnings per share of $216 is “above peers,” they wrote. “Said differently, we expect a market multiple closer to 18x at year-end versus others around 20x.”
JPMorgan tops estimates for fourth-quarter revenue, but says mild recession is now ‘central case’
PUBLISHED FRI, JAN 13 202312:01 AM ESTUPDATED FRI, JAN 13 202311:32 AM EST
KEY POINTS
- Here’s what the company reported: Earnings of $3.57 per share, which doesn’t compare with the $3.07 estimate, according to Refinitiv.
- Revenue of $35.57 billion vs. $34.3 billion estimate
JPMorgan Chase on Friday posted fourth-quarter profit and revenue that topped expectations as interest income at the bank surged 48% on higher rates and loan growth.
Here’s what the company reported:
- Earnings of $3.57 per share which exceeds the $3.07 estimate after excluding one-time items, according to Refinitiv.
- Revenue of $35.57 billion vs. $34.3 billion estimate
The New York-based bank said profit jumped 6% from the year earlier period to $11.01 billion, or $3.57 per share. Revenue rose 17% to $35.57 billion, fueled by the rise in net interest income to $20.3 billion, topping the StreetAccount estimate by $1 billion, as the bank saw average loans rise 6%.
But the bank posted a $2.3 billion provision for credit losses in the quarter, a 49% increase from the third quarter that exceeded the $1.96 billion StreetAccount estimate, as it set aside money for expected defaults. The company’s shares rose 1.1%.
The move was driven by a “modest deterioration in the Firm’s macroeconomic outlook, now reflecting a mild recession in the central case” as well as loan growth from customers using their Chase credit cards, the bank said.
The recession, in which U.S. unemployment could reach 4.9%, is expected by JPMorgan economists to hit in the fourth quarter of this year, CFO Jeremy Barnum told reporters Friday in a media call.
The company’s jump in credit provisioning topped that of rival giants Bank of America and Wells Fargo, which each saw smaller increases in the quarter.
While JPMorgan CEO Jamie Dimon said Friday that the U.S. economy “currently remains strong” thanks to well-financed consumers and businesses, he pointed to a series of risks to that outlook.
“We still do not know the ultimate effect of the headwinds coming from geopolitical tensions including the war in Ukraine, the vulnerable state of energy and food supplies, persistent inflation that is eroding purchasing power and has pushed interest rates higher, and the unprecedented quantitative tightening,” Dimon said.
Quantitative tightening refers to central banks’ moves to shrink their balance sheets by halting or reversing previous bond-buying programs.
JPMorgan, the biggest U.S. bank by assets, is closely watched for clues on how the industry is navigating an economy at a crossroads.
Analysts expected a mixed bag of conflicting trends from banks. Higher rates help lenders earn more interest income, but some of that boost was offset by bigger provisions for expected loan losses as the economy slows.
JPMorgan gave some muted guidance for 2023, saying that it expects about $73 billion in net interest income, which implies a decline from levels in the fourth quarter of 2022. And the bank said that expenses will reach about $81 billion this year, up from $75.9 billion in 2022, because of wage inflation, hiring plans and investments in technology.
When pressed about the bank’s ill-fated acquisition of college financial planning platform Frank, Dimon defended his bank’s record on technology spending, but acknowledged it was a “huge mistake.”
Dimon rattled markets last year when he said an economic “hurricane” caused by the Federal Reserve was headed for the U.S. He declined to update his forecast in a media call on Friday.
Shares of JPMorgan have climbed 4% this year before Friday, compared with the 6% rise of the KBW Bank Index.
The other large retail banks, including Bank of America, Wells Fargo and Citigroup, also released results Friday, while Goldman Sachs and Morgan Stanley are scheduled to report Tuesday.
HI Financial Services Mid-Week 06-24-2014