Earnings Season is Here!

Stocks opened slightly higher this morning as investors parse through the first few earnings season reports (see below). Bonds, however, are giving up ground after a week-long rally.

Several banks kicked off earnings season today and the results were better than expected. There are few specific takeaways. First, bigger banks are stealing customers from the smaller banks, which is no surprise given concerns about liquidity after Silicon Valley Bank failed. Second, investors’ fear of weak loan demand and falling net-interest income now seems overblown. Third, the US economy & consumer remain resilient. JP Morgan (JPM) reported 34% year-over-year growth in revenue. CEO Jamie Dimon said, “Almost all of our lines of business saw continued growth in the quarter.” What’s more, profits rose sharply and management now expects to grow net-interest income by 30% this year. Wells Fargo (WFC) managed to growth revenue by 21% and earnings-per-share by 69%. Management revised its estimate 2023 net-interest income growth to 14% from 10%. The one potentially worrisome detail in WFC’s report was higher than expected loan loss reserves tied to office building loans.

UnitedHealth Group (UNH) stock jumped nearly 8% this morning after reporting second quarter results. Year-over-year revenue growth of 16% was the highest in years. Higher interest rates apparently boosted the company’s investment portfolio. More importantly, its medical loss ratio—the portion of premium revenue paid out in claims—came in at 83.2% as expected. The CEO recently warned of rising medical costs and before today the stock was down more about 16% this year. So this report is more a sigh of relief rather than a triumph of strength.

Blackrock (BLK), one of the largest investment management firms in the world, reported mixed second quarter results and the stock is down 1.5%. While revenue rose 5% from first quarter levels, that was 1% lower than the year-ago quarter. Clients added $80bil in new assets, which was less than expected. Fixed income and cash funds saw inflows but management reported net outflows from equity funds. Profits benefited from lower costs and higher non-investment income, but investors really want to see stronger asset inflows.