U.S. Bank Stocks Stumble After Earnings Fall Short of Expectations

U.S. Bank Stocks Stumble After Earnings Fall Short of Expectations: The sector’s stocks struggle with overly high expectations for significant bank valuations.
The stocks of the largest U.S. banks have outperformed the broader market this year,
but this rise has halted due to results that disappointed investors.

 

Contents

Loss of Momentum

Results Insufficient to Maintain Momentum

Performance of Wells Fargo and Citigroup
Overly High Expectations

 

 

 

Loss of Momentum

Wells Fargo & Co. is headed for its worst decline on an earnings announcement day over three years after failing to achieve the expected net interest income.
Citigroup shares also fell, with a focus on expenses, even though its market revenues exceeded expectations.
Meanwhile, JPMorgan Chase & Co., whose shares saw the most significant drop a month after its results and stable guidance disappointed investors,
is set to recover some of those losses early in the session.

 

Results Insufficient to Maintain Momentum

In short, the results were insufficient to maintain momentum after a series of gains
led all stocks to rise more than 20% this year up until the day before yesterday’s close,
compared to the S&P 500‘s 17% gain. The moves were strong, especially considering yesterday’s broader market’s rise,
with about 425 stocks in the S&P 500 index posting gains.

Art Hogan, Chief Market Strategist at B. Riley Wealth, explained,
“The stocks of all three companies that announced results have risen significantly yearly.
This significant increase puts you where you have reached the maximum price range.”
The three stocks fell after the first quarter results announcement,

highlighting how profits increasingly pose a hurdle for the sector amid rising valuations.

 

 

 

Performance of Wells Fargo and Citigroup

Wells Fargo’s stock is the worst performer among index stocks during the trading session,
with shares falling as much as 7.6%, marking the most significant one-day decline since March 2023.
The giant lending institution warned in its earnings report that it will not be able to reduce costs
this year as quickly as expected after recording higher-than-expected expenses in the second quarter.
Citigroup’s stock also declined, ranking among the 10 worst performers in the S&P 500 index, dropping by 3.6%.

 

Overly High Expectations

The shares of the largest U.S. banks have seen significant gains in 2024 amid optimism about the Federal Reserve cutting interest rates,
the continued strength of the U.S. economy, and the potential easing of restrictive regulatory proposals.
While they remain significantly elevated despite yesterday’s session declines,
second-quarter results highlight the possible risks facing the banking group after heightened expectations.
Bank of America, Goldman Sachs Group, and Morgan Stanley will be in the spotlight early next week as they release their results.

 

U.S. Bank Stocks Stumble After Earnings Fall Short of Expectations

U.S. stocks close the trading session lower.

U.S. stocks close the trading session lower: In the last 30 minutes of Wall Street trading,
stocks erased their gains as investors rebalanced their investment portfolios following
a buying wave that increased their value by more than $4 trillion this year.

 

Content

Closing Trades

Economic Data

Central Banks

U.S. Stock Index

Market Movements

 

Closing Trades

Stocks closed lower for the third consecutive day, after a frenzied buying period
that saw the S&P 500 index rise by nearly 10% in three months.
According to recent estimates from Morgan Stanley,
Funds are expected to sell about $22 billion in global stocks and buy $17 billion
in fixed income to return to original asset allocation levels.
The U.S. stock index is on track to record five consecutive months of gains from November
to March, a feat accomplished only once in this century, in 2013.
Now, traders are debating whether the path will become more difficult
to continue rising as stock valuations remain relatively high compared to history.
“We still expect to see normal pullbacks along the way,” said Keith Lerner at Truist Advisory Services.
“However, until the weight of the evidence shifts, we suggest investors stay
with the primary market trend, which is up, and view pullbacks as opportunities.”
The data supports both arguments as the big debate continues
on how concentrated or broad this year’s S&P 500 rise has been, approaching 5200.
After the year began with gains focused on tech-heavy sectors,
the rally broadened to include other groups like commodities and industrials.
However, the contribution to total returns shows that 60%
of the gains in the index were driven by just six stocks:
Nvidia, Microsoft Corp., Meta Platforms Inc., Amazon.com Inc., Eli Lilly & Co., and Broadcom Inc.

 

Economic Data

As traders prepared for the Fed’s preferred inflation gauge on Friday – when markets will be closed
they analyzed the latest economic readings. U.S. consumer confidence remained steady,
durable goods orders rose, and home price growth accelerated faster since 2022.
“Expect market volatility in the coming quarters with mixed data
and questions about how long the Fed intends to pause,”

said Victoria Fernandez at Crossmark Global Investments.
We would not be surprised to see another rate cut priced out of the market, pushing yields slightly higher
from current levels, as economic data shows strength and current levels do not appear to be very restrictive.”

 

Central Banks

For stocks to justify their multiple expansion in recent months, global central banks must ease monetary policy this year.
According to Marko Kolanovic at JPMorgan Chase & Co, companies must deliver healthy earnings growth.
“Overall, if central banks turn out to be more dovish than currently projected,
but without this being accompanied by growth disappointments,
current equity multiples could be defended,” he wrote this week.
He added that equity multiples must fall if earnings disappoint and central banks are more restrictive.
Institutional, retail, and hedge fund clients of Bank of America Corp.
were all net sellers of U.S. equities in the week ended March 22,
while corporations buying their shares were the sole net buyers.

 

The U.S. stock index

The S&P 500 is on track to witness its fifth consecutive month of gains,
with a cumulative price return of about 25%.
The rise was supported by an economy that exceeded expectations,
future corporate earnings estimates that reached record levels,
technological leadership, and expectations that the Federal Reserve will begin to lower rates later this year,
according to Lerner at Truist.
“Strong price momentum, as we’ve seen over the past five months,
tends to occur during bull markets and is a sign of underlying strength,” he added.
While the markets seem to be stretching,
similar past periods of strength also tended to be positive when looking forward 12 months
with stocks rising every time and showing an average gain of 14%, Lerner added.
“Stocks have risen in the first quarter in anticipation of the first-rate cuts,”
said Anthony Saglimbene at Ameriprise.
“We have likely already entered a period where the Federal Reserve
is now less likely to surprise the market from here on out.”
Prices will likely continue rising until late March, given the lack of evidence of technical deterioration,
according to Mark Newton at Fundstrat Global Advisors.
“I continue to see the U.S. stock market as technically attractive,
and I do not feel there is enough risk to justify a sell-off at this time,”
Newton said. He concluded that a rise in the S&P 500 to 5350-5400
is possible until mid-April – before consolidation begins.


Market movements

Stocks
The S&P 500 was down 0.3%
The Nasdaq 100 fell 0.4%
The Dow Jones Industrial Average was virtually unchanged
Currencies
The Bloomberg U.S. Dollar Index was virtually unchanged
The euro was steady at 1.0830
The British pound was steady at 1.2625
The Japanese yen fell 0.1% to 151.58 against the dollar
Cryptocurrencies
Bitcoin fell 2% to $69,538.32
Ether fell 1.9% to $3,561.06
Commodities
West Texas Intermediate crude fell 0.6% to $81.49 a barrel
Spot gold rose 0.3% to $2,177.89 an ounce

 

U.S. stocks close lower

Worst Wall Street Investing Mistakes of 2023

Worst Wall Street Investing Mistakes of 2023: The expectations of American market experts confirmed that stocks would fall, bonds would rise,
and a recession would arrive. The S&P 500 index rose by 5% in January, contrary to the expectations of all experts, which confirmed that it would fall strongly.



Topics

Expectations of the largest American banks
Failure of expectations

Recession traps and high-interest rates

S&P 500 Index

Growing pessimism

Bond experts

China’s economy

Conclusion

 

Expectations of the largest American banks

At the end of the year 2022, the situation was very bad on Wall Street, as everyone was preparing for a recession, believing that it was coming without a doubt.

Mike Wilson, a strategist at Morgan Stanley, who preferred a decline in stocks, expected a decline,
while at Megan Swiber
Bank of America, was asking clients to prepare for a decline in Treasury yields,
while at
Goldman Sachs, Kamakshi Trivedi, one of the strategists, was encouraging increased investment in Chinese companies.
After the Chinese economy recovered from the consequences and impact of the Corona pandemic and closures.

Consequently, Wall Street issued a formula common to all forecasts, which encouraged selling US stocks and buying Treasury bonds and Chinese stocks.

 

 

 

Failure of expectations

The expectations failed and the consensus was completely wrong. What was expected to fall rose, and what was supposed to rise fell.
Contrary to the consensus and expectations, the
S&P 500 index rose by 20%, and the Nasdaq 100 index rose by more than 50%.
This is the largest rise. On an annual basis since the period of the “Dot-com bubble,”
which is the period in which the shares of technology and Internet companies in the United States witnessed a significant rise in value and then a sharp decline in value.

More importantly, it shows how the economic forces unleashed during the pandemic—essentially increasing consumer demand,
boosting economic growth and driving inflation—continue to fascinate the financial and political community in Washington and beyond.
It also puts the sellers, known to prominent Wall Street analysts, in an awkward position before investors around the world who pay for their opinions and advice.

“I’ve never seen a consensus forecast as wrong as in 2023,” said Andrew Pace,
director of investment strategist at Russell Investments, which manages about $290 billion in assets. “Look at the sell side, they’ve all failed.”

 

Recession traps and high-interest rates

Asset managers like Russell have defied the odds and delivered strong results, with stocks and bonds earning slightly better than their benchmarks.
To be clear, Pace’s predictions were not as successful as the biggest sell-side promoters.
The main reason behind his mistakes was the same reason that prompted them to do so; It was the urgent feeling that America was heading towards recession,
as was the case in the rest of the world.

This makes sense because the Fed is amid its most aggressive interest rate hikes in decades, and a decline in consumer and business spending seems certain.

However, there is little evidence of this yet. Indeed, growth has accelerated this year as inflation has declined.
Add some developments in artificial intelligence, the new hot topic in the world of technology, and you have the right mix for a bull market.

 

S&P 500 Index

The year started well, with the S&P 500 rising 5% in January alone and 16% by midyear.
At the time, slowing inflation sparked widespread speculation that the Federal Reserve would begin adjusting interest rates and a rate hike was imminent,
and the pace of rate hikes accelerated again in November, bringing the index close to its all-time high.

However, Wilson, chief US equity strategist at Morgan Stanley, stood his ground.

His forecast of a stock market decline in 2022, which few people believed would be true,
helped him earn the highest portfolio strategy rating in the Institutional Investor survey for two years in a row.
Wilson stuck to the pessimistic forecast and said that stocks will fall sharply in early 2023, and even if they rise in the second half of the year, there will be no significant change in the end.

 

Growing pessimism

Many people joined him. A massive wave of selling last year in response to rising interest rates sparked panic among strategists.
By early December, they expected stocks to decline again in the new year, according to the median forecast among Bloomberg survey respondents.
Consensus forecasts of a potential decline like this have not occurred for at least 23 years.
Even Marko Kolanovic, a strategist at JPMorgan Chase, implicitly endorsed this view, insisting through most of 2022 that stocks were on the cusp of a rally.
These pessimistic trends continued into the following year, as average expectations for the S&P 500 saw a slight rise.

Wilson has become the public face of the pessimist class, convinced that corporate profits will deteriorate as they did in 2008.
While traders are betting that lower inflation will benefit stocks, Wilson has warned against the opposite,
suggesting that a continued slowdown in the economy could squeeze corporate profit margins.

 In January, he said that even the pessimistic consensus on Wall Street’s outlook was too optimistic, and he predicted the S&P would fall more than 20% before eventually rising again.
A month later, he warned clients that the reward-to-risk ratio had fallen to its lowest levels during a bear market.
In May, when the index rose about 10%, he urged investors not to be fooled. “That’s what happens in a down market,” he said.
“It’s built on tricking you, confusing you, and forcing you to do something you don’t want to do.”


Bond experts

Similar opinions are widespread among leading bond experts. Treasury yields rose in 2022,
raising borrowing costs for consumers and businesses after the Federal Reserve ended its near-zero interest rate policy.
It all happened
So quickly that it was thought that certain sectors of the economy were doomed to collapse, pushing them into recession.
When that happens, bonds will rise as investors flock to safe-haven assets, and the Fed will come to the rescue by resuming monetary easing.

So Swiber and her colleagues on Bank of America’s interest rate strategy team, like the vast majority of analysts,
big gains for bond investors who have just suffered their worst annual losses in decades.
The bank is one of the few institutions calling for a reduction in the benchmark 10-year bond yield to 3.25% by the end of 2023.

For once, it looked as if it would happen soon. The collapse has already happened,
with Silicon Valley and several other banks filing for bankruptcy in March
after suffering huge losses in fixed-income investments as the Federal Reserve raised interest rates, and investors braced for the crisis to escalate.
Which will hinder economic growth. Stocks fell, bonds rose, and the 10-year bond yield fell below Bank of America’s target.
“The idea is that this will act as a tailwind to expectations of a deeper recession,” Swiper said.

 

China’s economy

 The Fed successfully contained the crisis, and yields resumed their steady rise throughout the summer and early fall as economic growth resumed its acceleration.
The late-year rally in US Treasuries has brought the 10-year yield down to 3.8%, where it was last year.

Swiper said the year was a lesson in humility, not only for her but for analysts as a whole.

Meanwhile, Wall Street received another lesson in humility in overseas markets
as Chinese stocks rose in the final two months of 2022 as the government ended pandemic restrictions.
As the economy opens up, strategists at banks, including Goldman Sachs and JP Morgan, expect China to lead the recovery in emerging market stocks.

Trivedi, global director of currencies, interest rates and emerging markets strategy at Goldman Sachs,
based in London, admitted that things were not going as expected. The world’s second-largest economy
is faltering as the housing crisis worsens and fears of deflation increase. Instead of flowing in,
investors exited, sending Chinese stocks lower and dragging gains in emerging market indexes lower.

“The support from reopening dissipated very quickly.
The net positive impact of reopening was small and we did not see the same growth rebound in other parts of the world,” Trivedi said.

 

Conclusion

Meanwhile, US stocks continued to overcome pessimism. By July, Wilson admitted that he had been pessimistic for too long,
saying: “We made a mistake in not expecting equity valuations to rise as inflation eases and companies cut costs.”
However, he remained pessimistic about corporate profits. Saying that the stock price is unlikely to rise in the fourth quarter.

Although the Fed did not change interest rates for the second time at its meeting in early November, it sparked a rally in stocks and bonds.
The pace of gains accelerated this month after monetary policymakers signaled they had finally ended the phase of raising interest rates,
leading traders to anticipate multiple rate cuts next year.
Markets have repeatedly gotten this fundamental shift wrong over the past couple of years, and they may now be making mistakes again.

Doubts are spreading among some Wall Street sellers. Gennady Goldberg,
head of U.S. interest rate strategy at TD Securities, said he and his colleagues are doing some soul-searching as the end of the year approaches.
TD is among the companies that expect big bond gains in 2023. “It’s important to learn from your mistakes,” Goldberg added.

What did Goldberg learn? The economy has been much stronger than he expected and better prepared for higher interest rates.
However, he remains convinced that a recession is coming and will happen in 2024, when bonds rise.

 

Worst Wall Street Investing Mistakes of 2023

Would Christmas bring back S&P500 to August High?

Would Christmas bring back the S&P500 to August High?

 

Would Christmas bring back the S&P500 to August High?

The market staged a strong comeback last week thanks to some better-than-feared earnings reports?

The rebound has set tongues wagging about a potential inflation point.

 

Topics

Is Inflation the New Black?
A Santa Claus Rally
Incredible Return

 

 

 

 

 

 

Is Inflation the New Black?

 

Inflation has been relatively dormant in recent years, but there are signs that it may be picking up steam.

Last week’s stock market rally was sparked by earnings reports from companies like Walmart and Cisco,

which beat expectations on both the top and bottom lines.

Investors are concerned that if inflation does start to pick up,

it could put pressure on corporate profits and weigh on stock prices.

However, last week’s rally showed that there is still plenty of demand for stocks even at elevated valuations,

Yardeni said in an interview on CNBC’s “Trading Nation” on Tuesday.

The market strategist has a year-end target of 4,000 for the S&P 500.

 

 

A Santa Claus Rally

 

A Santa Claus rally would put the index above its 200-day moving average, currently at 3,818.

It would also confirm Yardeni’s thesis that a U-shaped recovery is underway for stocks following the coronavirus sell-off in March, the market strategist said his bullish outlook is based on three factors:

central bank support, progress on vaccines and President Donald Trump not being re-elected.

First and foremost, amongst these reasons is central bank support—or what Yardeni called “the mother of all Put options.” He also said “The Federal Reserve has been pumping money into financial markets through asset purchases and keeping interest rates near zero to help offset the economic impact of Covid 19”

A Santa Claus rally is a sharp and sustained increase in stock prices that typically occurs in the last week of December.

The rally is named after the legendary figure who brings gifts to children on Christmas Eve.

The Santa Claus rally is often attributed to year-end buying by mutual fund managers,

who reinvest cash that has come into their portfolios from investor redemptions and dividends.

Other factors that may contribute to the Santa Claus rally include positive investor sentiment about the upcoming year and window dressing by portfolio managers, who buy stocks at year-end to improve the appearance of their portfolios before they are reported to clients.

 

 

 

 

 

Incredible Return

 

With the midterm elections just around the corner, investors are wondering if a Santa Claus rally is in store. Historically, Santa Claus rallies have been more common during midterm election years, with Yardeni Research discovering that there have been 19 such years since 1950. Of those 19 years, 14 saw further gains through March 31st of the following year, for an average return of 7%. So, as we approach December 2018 and the midterms, investors should keep an eye out for indicators of a potential Santa Claus surge.

With the stock market on shaky ground, many investors are wondering what the potential returns could be on SPY if the S&P 500 retraces its August highs. According to Yardeni, the index could see a 15% rally over the remainder of the year. This would translate into an impressive return of 15.4% for SPY investors if his scenario plays out.

While this return would be welcomed by many, it is important to remember that there is no guarantee that Yardeni’s predictions will come true. The market is notoriously difficult to predict and anything could happen in the coming months that could send SPY tumbling back down again. However, for those who are willing to take a risk, investing in SPY now could lead to some very healthy returns by year’s end.”

The SPDR S&P 500 ETF Trust (NYSE: SPY) could potentially return 15% over the remainder of the year if the S&P 500 retraces its August highs, as hinted at by Yardeni. If SPY rebounds to reach its mid-August intraday high of $431.73, this would result in the same return on investment.