Earnings Season Helping To Refocusing Investors

Earnings season is under way, with the big banks batting lead-off. JP Morgan Chase (JPM) reported slightly positive revenue and profit growth, but that was good enough to beat Wall Street analysts’ expectations. Skipping right to the highlights, net interest income—interest collected on loans minus interest paid on deposits—climbed 3% from the year-ago quarter, and cost control was good. Investment banking revenue grew 31%, and credit card revenue rose 11%. Management isn’t seeing the much-feared spike in loan defaults.

Bank of America (BAC) stock is up about 1.5% after reporting quarterly results today. Revenue rose 12% from securities trading and 15% from investment banking. Traditional banking was less exciting. Net interest income fell 2.9% from the year-ago quarter, but was sequentially better than the last quarter. The loan book grew 2.5%, which is encouraging. And we still don’t see signs of deteriorating credit quality among its customers. Both net charge-offs and loan loss reserves were in line with expectations. Finally, management’s outlook for profitability isn’t as negative as some analysts anticipated.

Charles Schwab (SCHW) reported better than expected third quarter results and the stock is up nearly 8% this morning. Total revenue rose 5% year-over-year, the strongest growth since the first quarter of 2023. Schwab has been successful gathering new client assets this year (+10% vs. the same period in 2023). And investors are encouraged by the way management is controlling costs. In addition, the “cash sorting” problem seems to be fading. That is, customers are now moving cash out of CDs and Treasury Bills, and back into sweep funds in order to invest in the stock market.

Meanwhile, Wall Street analysts are “scrambling to get their [S&P 500] targets higher,” according to Ritholtz Wealth Management CEO Josh Brown. He reminds us of last year’s predominant market narrative; only 7 stocks are doing well, the economy is slowing, the Fed raised rates too high and will be forced into a series of emergency rate cuts to stave off recession. That narrative turned out to be completely wrong. Corporate earnings and consumer spending remain strong, and the rally has spread out beyond the Mag-7 stocks. In addition, the market is clearly not pricing-in “election chaos.”