Market Note – October 15, 2024

By Hightower Great Lakes on October 15, 2024

3Q 2024 Earnings Season Begins

Third-quarter earnings began last week with results from JP Morgan (JPM) and Wells Fargo (WFC). JPM and WFC both reported positive results, pushing their stock prices higher on Friday by 5.6% and 4.4%.

JPM’s investment banking fees rose 31% y/y and trading revenues rose 8% y/y – both exceeding last month’s estimates. The company also raised its annual net interest income (NII) forecast by $1.5 billion to $92.5 billion.

Jeremy Barnum, JPM’s CFO, said that the company’s results show consistency to the soft-landing narrative, and he is hopeful about its mergers and acquisitions pipeline.[1]

WFC beat EPS estimates but came in below the street on revenue and NII. The stock rose following comments that NII is likely to trough in the fourth quarter.

Credit trends appear to be heading in the right direction for WFC with reserves remaining flat q/q and hopes that its asset cap imposed by the Fed will soon be lifted.

Positive quarters from both JPM and WFC indicate that other financials likely had solid quarters as well – Bank of America (BAC), Morgan Stanley (MS), and Truist Financial (TFC). 

Chart 1: Financials Gain on Friday Following JPM and WFC Q3 Results[2]

Further Data Points to Soft Landing

September’s inflation data came mostly in line with consensus. CPI was up 2.4% y/y, 0.1% higher than estimates, and 0.1% lower than August’s reading. Core CPI rose 3.3% y/y, 0.1% above consensus and August’s reading. Wage growth remains robust at 4% y/y.

Inflation data continues to show it is declining to the Fed’s 2% goal and reinforces the committee’s focus to the labor market. But Initial Jobless Claims did come in hot last week – 258K versus estimates for 229K.

The four-week moving average rose to 231.75K from 224.8K the previous week. Weekly Jobless Claims are still well below recessionary levels of 350-375K as well as the ten-year average of 371K.

We continue to watch jobless claims, wage data, and any signs of an uptick in inflation. The U.S. economy is growing at an above-trend pace with a healthy consumer; lower interest rates should further expand the economy but could lead to more inflation. We have said for a while that we would rather have more growth with a little more inflation than less growth and less inflation.

Chart 2: Initial Jobless Claims Jump to 258K Last Week[3]

Fixed Income

U.S. Treasury yields were mixed last week. The two-year Treasury yield fell 3 bps to 3.95%, while the ten-year rose 14 bps to 4.10%, levels not seen since late July.

The 2s/10s spread rose to 11 bps to +14 and market odds now imply 50 bps of rate cuts by the end of the year. Municipal bond yields rose 5-9 bps across the curve.

U.S. Investment Grade spreads tightened 2 bps over the week and 17 bps over the last month to +121. U.S. High Yield spreads came off yearly tights of +335 and widened 7 bps over the week to +342.

U.S. credit ratings were split as the main rating agencies issued 30 upgrades and 29 downgrades; Energy led the way with the most upgrades. So far in October, there have been 103 upgrades compared to 52 downgrades.

The Week Ahead

Earnings – Tuesday: BAC, C, GS, JBHT, JNJ, OMC, PNC, STT, UNH, WBA; Wednesday: ABT, CCI, CFG, CSX, KMI, MS, PLD, SYF, UAL, USB; Thursday: BX, DFS, EFX, ELV, HBAN, ISRG, KEY, MMC, MTB, NFLX, PPG, SNA, STLD, TFC, TRV; Friday: AXP, FITB, PG, RF, SLB.

Economics – Wednesday: Export Prices, Import Prices; Thursday: Initial Claims, Retail Sales, Industrial Production, Manufacturing Production, Business Inventories; Friday: Building Permits, Housing Completions, Housing Starts.

Return for Selected Indices^[4]

Click here to read last week’s Market Note (10/8).

Disclosures

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This document was created for informational purposes only; the opinions expressed herein are solely those of the author(s) and do not represent those of Hightower Advisors, LLC, or any of its affiliates.

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[1] Source: Reuters. As of October 11, 2024.

[2] Source: FactSet. As of October 11, 2024.

[3] Source: FactSet. As of October 11, 2024.

[4] Source: Bloomberg. As of October 14, 2024.