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US futures steady as big bank earnings flow in

Posted on by darion

U.S. stocks rose on Friday following a sell-off led by the technology sector as investors assessed earnings reports from Wall Street’s biggest banks and waited for inflation data that could test hopes for an interest rate cut.

Futures on the S&P 500 (ES=F) were flat near the benchmark’s recent all-time high. Futures on the Dow Jones Industrial Average (YM=F) and the tech-heavy Nasdaq 100 (NQ=F) were also little changed.

Stocks began to stabilize after the S&P 500 (^GSPC) and Nasdaq Composite (^IXIC) ended seven-day winning streaks on Thursday, and optimism about lower interest rates sent big tech stocks tumbling.

A series of quarterly earnings reports from Wall Street banks kicked off the earnings season before the market opened, testing the sector’s rally that has outpaced the S&P 500 this year.

JPMorgan Chase (JPM) profit rose 25% in the second quarter, driven by rising investment banking fees and an $8 billion one-time gain related to Visa, but shares fell. Wells Fargo (WFC) shares fell 6% after the company reported a profit decline as it missed interest income estimates. Citigroup (C) is also on the docket Friday.

At the same time, the market is considering a move in the utility and real estate stocks that have taken the biggest hits this year: Nvidia (NVDA) and the Magnificent Seven — which just had their worst day in almost a year.

Thursday’s rotation out of tech came as investors viewed June’s surprisingly mild consumer inflation print as a reason for the Federal Reserve to cut interest rates. The market is almost fully pricing in a September cut, and bets are rising on a second cut in December, according to the CME FedWatch tool.

Now the debate has shifted from whether the Fed will act to how often and how deeply, with some on Wall Street calling for rates to be cut by as much as 0.75% by the end of the year. Given that, investors will be closely watching the June producer price index on Friday for confirmation that price pressures are easing.

Live2 updates

  • Telephone interview with: JP Morgan CFO Jeremy Barnum

    I just got back from an earnings press conference with JP Morgan (JPM) CFO Jeremy Barnum (thanks to Yahoo Finance banking reporter David Hollerith for getting his question in front of me).

    Here is our exchange:

    I: We’ve had cautious results from various consumer companies this week, like PepsiCo (PEP), which are urging caution from consumers. Are you seeing anything in your debit or credit data that suggests consumers are pulling back, whether due to inflation or election fears?

    Barnum: The short answer is no. So we’ve made some of these points over time, but I’ll repeat them here. So our overall view is that consumer spending in real terms is pretty flat. So I see spending picking up, but we’re also not seeing, you know, any significant weakness. Like with this data, you can always take a magnifying glass and try to look a little deeper, and one of the things that we’ve seen a little bit in the spending patterns in the lower-income segments is that you’re starting to see some evidence, some rotation of spending from discretionary to nondiscretionary, which is traditionally for obvious reasons and is understood as a slight sign of weakness. But in a world where the unemployment rate is 4.1% and GDP growth is slowing down a little bit, the data that we’re seeing on the consumer side is completely consistent with that economic environment. And the overall background picture, whether it’s spending, whether it’s debits, whether it’s delinquent rates, cash buffers, etc., is still consistent with a pretty healthy consumer. You know, that’s not an issue at this point.

    Note: JP Morgan CEO Jamie Dimon, interestingly, was absent from the call as is customary. We were told it was due to a travel conflict, as he was flying back from an event in Germany. There’s nothing more to read into that, Barnum said in response to a reporter’s question about Dimon’s absence.

  • Telephone interview with: BNY CEO Robin Vince

    TGF!

    I just got off the phone with BNY Mellon (BK) CEO Robin Vince after the company released its earnings (a good quarter). I thought my exchange with him below would be interesting. Note: Vince was the former Chief Risk Officer at Goldman Sachs (GS).

    I: How do you view the risk in the equity part of the business in the wake of the election?

    Vince: I think what we’ve seen over the history of time is that the stock market is pretty much indifferent to which party ultimately controls the White House. It’s more concerned with what the mix of control of the two houses of Congress and the White House is. So if you look at what happens in control of the White House, the history of the stock market will tell us that the stock market doesn’t necessarily care that much.