Surging American Bank Stocks - What's Driving the Rise?
Stocks finished mixed Friday but scored solid gains for the week, as surprisingly moderate U.S. inflation data prompted hopes that the Federal Reserve could soon stop its pattern of interest rate hikes. With June consumer prices and producer prices showing smaller than expected increases, investors are now considering whether a strong economy could push stocks higher by the end of the year. Earnings season started Friday with reports from some of the big banks, but investor expectations for this season are decidedly downbeat, with the analyst consensus forecasting a 7% year-over-year decline in S&P 500 earnings. All three stock market benchmarks rose for the week, with the Dow Jones and Nasdaq each tallying their best weekly percentage gains since March, up 2.3% and 3.3% respectively, and the S&P adding 2.4% for its largest weekly gain since mid-June.
US Banks Earnings: Several major US banks, including JPMorgan Chase, Citigroup, and Wells Fargo, exceeded expectations in their quarterly earnings reports. Despite the fallout from some of the largest bank failures in US history, these banks posted higher-than-expected revenue and profits in the second quarter. As a result, their stock prices rose by over 1% in early Friday trading. The banks benefited from elevated interest rates, which contributed to the downfall of other banks earlier this year. JPMorgan's net interest income reached $21.9 billion, a 44% increase compared to the same period last year. Wells Fargo and Citigroup also saw increases of 29% and 16% in interest profits, respectively. State Street, the 12th-largest American bank, reported an 18% year-over-year rise in net interest income, although its stock declined by nearly 5% due to falling short of sales estimates. Additionally, BlackRock, the world's largest asset management company, achieved a 27% quarterly profit jump. Despite the positive earnings numbers, the CEOs of Citigroup, JPMorgan, and Wells Fargo expressed caution regarding the current macroeconomic situation. They highlighted concerns about persistent high core inflation, which increases the risk of higher and longer-lasting interest rates. Jamie Dimon, the billionaire CEO of JPMorgan, stated that elevated interest rates are not universally beneficial for banks, given the unprecedented scale of quantitative tightening.
Alphabet: Google parent company Alphabet (GOOG, GOOGL) saw its shares surge over 4% on Thursday as it announced the expansion of its generative AI-powered chatbot, Bard, to more countries and the introduction of new features. Bard, similar to Microsoft's Bing and OpenAI's ChatGPT, offers conversational responses to various queries. Google revealed that Bard is now available in over 40 languages, including Arabic, Chinese, and Spanish, and is being introduced in regions like Brazil and Europe. Users can now customize the tone of responses, play them aloud in audio format, and enjoy other enhancements. Additionally, Bard users can save and revisit conversations, easily share responses, and import images for inquiries. While Bard and Bing compete against traditional search methods, the progress in generative AI technology suggests they may eventually surpass standard search offerings. However, concerns regarding the spread of disinformation accompany these advancements. Google's announcement coincided with criticism over the use of third-party moderators to assess Bard's responses. Improvements in product quality and accuracy will play a crucial role in determining the adoption of these AI-powered chatbots as replacements for existing search engines.
UnitedHealth Earnings: UnitedHealth Group saw a significant boost in its stock price as it surpassed Wall Street's expectations with its second-quarter revenue and adjusted earnings. Despite concerns over rising medical costs and increased demand for non-urgent surgeries and outpatient services, the health-care conglomerate's strong performance eased investor worries. With a net income of $5.47 billion and total revenue of $92.9 billion, up 16% from the same period last year, UnitedHealth Group proved its resilience as the largest health-care company in the U.S. by market cap and revenue. Its insurance arm, UnitedHealthcare, experienced a 13% revenue growth, while Optum, the company's health services platform, witnessed a nearly 25% increase, fueled by its acquisition of Change Healthcare and a rise in the number of patients served under value-based care arrangements. UnitedHealth Group raised its full-year adjusted earnings outlook and expects a slight decrease in the medical cost ratio for the third quarter. The company's performance is closely watched as a barometer for the broader health insurance sector. Despite facing challenges, UnitedHealth Group remains optimistic about the future, anticipating consistent care activity and a positive outlook for the coming quarters. The company's ability to navigate evolving market dynamics, manage medical costs, and sustain its strong performance positions it well within the industry.
Weekly ETF: The Financial Select Sector SPDR Fund (ETF) with the ticker symbol XLF is an exchange-traded fund that seeks to provide investment results that correspond to the performance of the Financial Select Sector Index. XLF primarily invests in companies from the financial sector, including banks, insurance companies, capital markets firms, and diversified financial services providers. Some of the top holdings in XLF include JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co., Citigroup Inc., and Goldman Sachs Group Inc. As an ETF, XLF provides investors with an opportunity to gain exposure to the financial sector as a whole, diversifying their investments across a range of financial companies.
Earnings this week:
Monday, July 17 - Equity LifeStyle Properties (ELS).
Tuesday, July 18 - Bank of America (BAC), Novartis (NVS), Morgan Stanley (MS), and Lockheed Martin (LMT).
Wednesday, July 19 - Goldman Sachs (GS), Tesla (TSLA), Netflix (NFLX), IBM (IBM), U.S. Bancorp (USB), United Airlines (UAL), Las Vegas Sands (LVS), and Nasdaq (NDAQ).
Thursday, July 20 - Johnson & Johnson (JNJ), Abbott Laboratories (ABT), Taiwan Semiconductor Manufacturing (TSM), Philip Morris International (PM), Travelers (TRV), American Airlines (AAL), Capital One (COF), and CSX (CSX).
Friday, July 21 - American Express (AXP), Schlumberger (SLB), AutoNation (AN), and Huntington Bancshares (HBAN).