|Dow||-5.88 to 16,315.19|
|S&P 500||+2.96 to 1,877.70|
|Nasdaq||+13.51 to 4,227.17|
|10-YR Yield||-.08 to 2.206%|
|Gold||+$3.30 to $1,233.30|
|Crude Oil||$3.79 to $81.95
Today was earnings day for the biggest mega-banks on the block — and judging by the market reaction, they failed to inspire investors!
Let’s start with JPMorgan Chase (JPM, Weiss Ratings: B+). The firm reported earnings of $5.6 billion, or $1.36 a share. That was a big swing from the year-earlier loss of $380 million, or 17 cents a share. But it missed the average estimate of $1.38.
One key problem is mounting legal costs — something all banks are dealing with due to multiple, multinational investigations and settlements. Those sliced $1 billion, or 26 cents a share, off JPM’s bottom line.
It’s also facing lackluster capital markets activity, with revenue from trading bonds, currencies and commodities up just 2 percent. Profit at JPM’s mortgage banking unit plunged 38 percent. The stock finished the day down fractionally.
Over at Citigroup (C, Weiss Ratings: B+), profit rose almost 7 percent year-over-year to $3.4 billion, or $1.07 a share. Stripping out special items resulted in a $1.15 per-share profit, better than the average estimate of $1.12.
But the global bank said it would exit retail banking and consumer finance lending in 11 countries around the world — from smaller Central American nations like Costa Rica and Panama to bigger countries like Japan and South Korea. Total loans fell 1 percent year-over-year, as did deposits, showing the growth struggle that mega-banks like Citi face.
|All banks are dealing with mounting legal costs.|
Credit performance has been a bright spot, with the bank shrinking its allowance for loan losses to 2.6 percent of loans from 3.16 percent a year earlier. Non-accrual loans (where borrowers are falling behind on payments) dropped 19 percent.
But if the global economy is faltering, led by Europe, Japan and other overseas markets, we may have already passed the trough for loan loss rates. So while C shares gained around 3% on the day, they’ve basically gone nowhere since all the way back in May 2013.
Then there’s Wells Fargo & Co. (WFC, Weiss Ratings: A+), one of the more domestically focused mega-banks. It reported third-quarter profit of $5.4 billion, or $1.02 a share. That matched the average forecast of analysts. Revenue of $21.21 billion slightly beat the consensus estimate of $20.95 billion.
Mortgage banking is a key element of Wells’ business, and the news there was disappointing. Mortgage income flatlined at $1.63 billion, while home loan originations tumbled 40 percent to $48 billion. Auto loans were a bright spot, up 11 percent to $55.2 billion, as was commercial and industrial lending, up 12 percent to $212 billion.
But investors weren’t happy overall. The stock plunged almost a buck and a half on the heaviest volume in a year.
|“These earnings reports are coming at a VERY interesting technical juncture for the financial sector.”|
These earnings reports are coming at a VERY interesting technical juncture for the financial sector. You can see that the banks, brokers, and insurance stocks — represented by the benchmark Financial Select Sector SPDR Fund (XLF) in the chart below — have declined along with the rest of the market recently.
This ETF has already knifed through an uptrend line dating back to spring 2013, and it is now testing its 200-day moving average. If the latest earnings news can’t reverse the weakness, and this moving average gives way, then we could lose yet another key sector of the S&P 500. And that raises an obvious question: Can the S&P 500 hold if the financials fold?
So what do you think of these developments in the financial sector? Would you invest in the mega-banks based on what they’re saying about loan losses, earnings growth, revenue trends, and more? Or are you steering clear of them?
Are there other, lesser well-known banks you like better than Chase, Wells, and the like? Or sectors that you’d rather invest in than the financials? Make sure you stop by the comment section to weigh in on that when you have a minute!
|Our Readers Speak|
As the Ebola outbreak continues to raise concerns here in the U.S. and abroad, many of you chimed in on what can and should be done to stem the spread of the deadly virus.
Reader Donald D. said: “I feel that it is a mistake to allow flights to the U.S. from countries that have the Ebola outbreak. To bring people that are infected into the U.S. to be treated is only looking for trouble.
“No one fully understands the Ebola virus. What if it mutates so it spreads through the air? Anyone arriving in the U.S. from the countries that are infected with Ebola should be quarantined for the weeks necessary to exceed the gestation period of the virus before allowing them to mingle with the public.”
Reader Dennis also weighed in, saying: “I have indeed cancelled my plans for travel, anywhere at this time. Obviously, you are not alone, being quite perturbed by this whole situation. Makes me think we are in our own Third World situation, right here in North America.
“Those nurses and doctors, in close contact with the Ebola? I believe there should be an incinerator to get rid of any clothing those people take off. I believe that after contact with a patient, and burning the clothes, those people could take a complete shower, and be sprayed with an alcohol based disinfectant, and whatever else is necessary for absolute non-contact with this death. Is it serious? HECK YA! On our homeland!”
Bottom line: Ebola is clearly a threat to thousands of residents of West Africa, and it’s starting to pop up in Europe and the U.S. Whether it morphs into something worse than a disease that strikes an unfortunate few here is going to depend a lot on the front-line response of our healthcare workers. Here’s hoping they get the job done right!
Meanwhile, when it comes to the broader markets, opinion remains divided. Some of you fear a sharp break, while others are still looking for buying opportunities. Reader Mike P. summed his approach up this way:
“Given I’m an early retiree, I felt it prudent to be 30 percent in cash for now. That said, I am a long term bull, especially when I see energy prices drop to levels unseen in years.
“The late Muriel Siebert said never bet against the market when energy prices are historically low. This applies to all global markets with the exception of those that depend on the export of oil. Therefore, I’m looking to put 90 percent of that cash back into the market when it looks like the selling has abated.”
Thanks for the input, Mike. To be honest, I’m getting increasingly concerned about the behind-the-scenes major sector breaks I’m seeing. Transports. Energy. Semiconductors. Small caps. Foreign stocks. That’s a lengthening list of losers, and it’s a key reason I’ve been pulling in my horns here in the publications I handle.
Please do keep those comments coming if you want to weigh in here. Click here for the place to do it, as always!
|Other Developments of the Day|
The Centers for Disease Control (CDC) said it’s investigating the transmission mechanism that allowed 26-year-old Dallas nurse Nina Pham to contract Ebola, despite the use of protective gear and other safeguards. Depending on the results, additional protocols may be put into place throughout the health care system.
Is “Fad Stock” GoPro (GPRO, Weiss Ratings: C) starting to give up the ghost amid negative press and worries about future growth? The shares tanked 14 percent yesterday amid worries that a GoPro camera contributed to the injuries suffered by retired Formula One racer Michael Schumacher. Definitely a stock to watch!
Has the mysterious, reclusive Kim Jong Un really come out of hiding? Opinions are mixed after the North Korean news media trotted out some photos of him touring a housing site and a state science academy. But it’s unclear when those pictures were taken.
You don’t need a nutrition degree to know that Big Macs and super size fries aren’t healthy in the long run. But in an attempt to bolster public opinion over its food preparation and distribution techniques, McDonald’s (MCD, Weiss Ratings: B-) is launching an “Our Food. Your Questions” social media campaign.
People can ask questions on sits like Facebook and Twitter, which McDonald’s will then answer via short videos or other techniques. No word yet if the “pink slime” chicken nugget goop that has gained so much Internet fame will be addressed!
Until next time,
P.S. Martin is inviting you to enroll in his Ultimate Retirement Course. It’s the free, five-session tutorial he’s creating to help you expand the size of your nest egg — to live more richly and more securely both before retirement and IN retirement.
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