CPI oh-my, US banks deliver hefty earnings beat, Quantum stocks pop
Since launching my podcast you have probably noticed an absence of my usual slice-of-life-missive that typically starts off the morning note. “What’s happening with her kids?” you may be wondering. The truth is, I don’t really know. But I can tell you where to find this podcast. Here are the links for Apple, Spotify and YouTube with Eric Jackson of EMJ Capital. Tomorrow we have Rick Rule, famed resource investor, talking all things mining and giving his best ideas right now.
Firehose: Futures are surging on a combination of lower than expected core inflation in the US and better than expected bank earnings south of the border. Core inflation (which excludes food and energy) unexpectedly cooled to 3.2% from 3.3%, the first deceleration in since the summer. Futures popped higher, the dollar sold off and bonds rallied when the number hit the tape. Headline inflation reaccelerated to 2.9%, but that was inline with expectations. On the face of it, I am not sure these are great numbers but I guess the point for the market is that they weren’t as bad as feared given the recent upside surprises we have been seeing to inflation. As if that wasn’t enough, earnings season is kicking off today with JP Morgan, Goldman Sachs, Citi, Wells Fargo, and Blackrock reporting. Fourth quarter earnings are expected to grow 11.7% which would be the best since Q4 of 2021 according to Michael Reinking, senior market strategist at NYSE MAC Desk. The rub is that pre-announced earnings have been rife with profit warnings, according to FactSet. 71 out of 106 companies have warned. One comfort to investors is that earnings growth isn’t just coming from the Magnificent 7 (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, Tesla). As you can see from the chart below the gap between earnings from the Mag 7 and the rest of the market is narrowing.
via JP Morgan, courtesy of Michael Reinking)
Dimon hands: JPMorgan’s earnings per share soared nearly 60% thanks to the deal-making and trading. Investment banking revenue jumped nearly 50% while trading revenue rose 21% to hit a fourth quarter record because of volatility during the US election. The outlook for a key measure of profitability (net interest income) was much higher than expected at $94 billion for the year compared to the estimated $91.3 billion. Provisions for loans that could go bad also came in lower than expected. But, the stock is barely up right now. Part of this could be because it is near a record high. The market also tends not to reward money-centre banks for earnings propelled by capital markets activity. Jamie Dimon, CEO of JPMorgan, also struck a cautious tone. “Ongoing and future spending requirements will likely be inflationary, and therefore, inflation may persist for some time,” Dimon said.
We are so back: Shares of Goldman Sachs are also getting a lift this morning after better than expected sales and trading in both equities and fixed income, currencies and commodities (FICC). The stock is up about 2% right now in the pre-market but keep in mind it got a huge lift after Trump won the election on expectations of reduced regulation for the banking sector. Strength in dealmaking is a prominent feature in both Goldman Sachs and JPMorgan and its likely making Canadian bankers a little envious. Its no secret it has been a dead zone here with one banker telling me this has been the worst three years for equity capital markets in Canada.
Turnarounds: Wells Fargo is seeing the biggest lift in the pre-market with the stock up more than 3%. The bank reported better profit and importantly said that a key measure of profit (net interest income) would be higher in 2025 than in 2024 (by 1-3%, but still better than expected). Wells Fargo has been a bit more of a turnaround play. This quarter featured nearly $650 million in severance expenses as the CEO attempts to reduce headcount and overall expenses (expenses, ex-severance, this quarter were down 12% from last year). Investors are taking notice, Wells Fargo has outperformed over the last 6 months. Citi, meanwhile, also beat expectations and the stock is up about 3% right now. However, as I look through the results the magnitude of the beat in capital markets doesn’t look as large as it was for the other banks. But, it announced a $20 billion buyback that investors are cheering.
Quantum leap: Quantum stocks are in rally mode this morning on a couple of catalysts. Microsoft declared 2025 to be “the year to become quantum-ready.” The company unveiled a slate of workshops and forums to help business leaders understand the technology. Nvidia announced that its GTC event in March will also include its first ever “Quantum Day”. A pretty interesting turn of events considering it was Jensen Huang, CEO of Nvidia, who said last week that quantum was more than 15 years away. Those comments took quantum stocks down by 50% in a single day. The CEO of D-Wave said Huang was wrong on quantum. Apparently representatives from D-Wave, IonQ and Rigetti will all be at Nvidia’s event. The stocks are surging in the pre-market. We talked extensively about quantum on our first podcast with Eric Jackson and his ProPicks featured two quantum computing ideas. You can watch that here.
