🏦 Big Banks, (slightly) bad news

Good afternoon. Markets are acting strange.

Despite inflation easing, which should have spurred a rally, markets dipped yesterday. Not the entire market, though—396 stocks in the S&P 500 ended the day in the green, according to Deutsche Bank. The real culprits were the heavyweights driving gains all year: the Magnificent 7 stocks collectively dropped 4.26%, dragging the rest of the index down with them.

Is this the tech selloff bears have been predicting for months? Maybe, but those same bears have seen the S&P 500 hit 38 new all-time highs this year. So, who knows?

MARKETS

• Speaking of all-time highs, the S&P 500 and Nasdaq bounced back from their worst day since April to close in the green. Today marks the S&P 500’s 5th positive week in 6, while the Nasdaq is up 11 weeks out of the past 12. The Dow isn’t typically the one hitting new records, but earlier this afternoon, the venerable index surpassed its previous high of 40,003.59, set back in mid-May.

• Small-cap stocks, as measured by the Russell 2000, haven’t had many positive weeks this year. But every dog has its day, and the Russell 2000 had its best day of the year yesterday. The index surged 5.56% over the last week—leaving the S&P 500’s 0.76% gain in the dust.

• Bond yields stayed steady all afternoon, as a better-than-expected CPI reading and a worse-than-expected PPI reading balanced each other out.

• Oil prices dropped, snapping a four-week winning streak, thanks to the disappointing PPI reading.

STOCKS
Winners & Losers

What’s up 📈

• Array Technologies ($ARRY) popped 8.69% thanks to a Citi upgrade from “neutral” to “buy,” citing the company’s strong long-term prospects. Competitor Enphase Energy ($ENPH) jumped 6.85% in sympathy.

• Carvana ($CVNA) soared 4.80% after BTIG analysts initiated coverage with a “buy” rating and a price target 7% higher than current levels.

• Trump Media & Technology Group ($DJT) climbed 3.40% as President Biden’s recent stumbles seem to be breathing new life into the stock.

• Builders FirstSource ($BLDR) jumped 3.99% as home builder stocks continued their climb on hopes of rate cuts. D.R. Horton ($DHI) rose 2.68%, and even Home Depot ($HD) got in on the action, rising 1.70%.

• Tesla ($TSLA) rose 2.99%, nearly recovering from yesterday’s drop over robotaxi delays, despite a UBS analyst downgrading the company to “sell.”

• Deckers Outdoor ($DECK) recovered 1.14% after announcing a 6-for-1 stock split, despite recent warnings from M Science analysts to stay away from the company

What’s down 📉

• Arbor Realty Trust ($ABR) plummeted 17.03% after the Justice Department announced a probe of the company due to improper lending practices.

• Vita Coco ($COCO) dropped 9.07% following a downgrade to “neutral” from Piper Sandler analysts. Who knew coconut water wasn’t worth $1.58 billion? Now that’s just vita loco!

• Delta Air Lines ($DAL) fell 3.06% as ongoing turbulence in the airline industry continued to weigh down the stock.

• Snowflake ($SNOW) sank 1.74% after AT&T announced a hack affecting virtually every one of its customers, raising cybersecurity concerns.

• AT&T ($T) slid 0.21% after revealing a massive data breach involving nearly all of its customers’ information.

EARNINGS
Big Bucks, Little Buzz: Banks post record earnings, but minimal stock gains

If you've been basking in a finance-bro-free summer, brace yourself: Big bank earnings season is upon us. JPMorgan Chase, Wells Fargo, and Citi just dropped their latest earnings reports. While they mostly beat expectations, a few bumps in the road left investors unimpressed.

JPMorgan Chase (JPM) set a new record, reporting the highest quarterly profit of any American bank ever. They smashed Wall Street estimates for earnings and revenue, but fell short on net interest income (NII)—a key metric that measures a bank’s profitability by comparing income from interest versus interest expenses. With the Fed likely to cut rates soon, this figure is under a microscope. JPMorgan’s NII rose 4% to $22.7 billion, but higher interest rates on deposits could dampen future profits. Despite the historic profit, JPMorgan’s stock dipped 1.21% on Friday.

Citigroup (C) also outperformed on earnings and revenue, with a 4% increase to $20.14 billion and earnings per share at $1.52, beating the expected $1.39. Investment banking revenue soared 60% to $853 million, though fixed income revenue fell 3%, in line with predictions. Even with strong results, Citigroup’s stock dropped 1.80% due to peer performance and the need to raise deposit interest rates.

Wells Fargo (WFC) was the day's laggard. Despite beating revenue and earnings expectations, they disappointed on NII, reporting a 9% decline to $11.92 billion, below the expected $12.12 billion. Management predicts a 7% to 9% year-over-year decline in NII for the rest of 2024, making Wells Fargo the worst performer in the S&P 500 on Friday, with shares down 5.97%.

What’s the Big Takeaway?

The Morningstar US Banks Index, which includes JPMorgan, Bank of America, and Wells Fargo, is up over 40% in the past year, compared to the S&P 500’s 26% rise. Big banks are doing well overall, but even stellar performances can be overshadowed by a few weak spots.

With monetary policy changes looming, the road ahead looks bumpy. “Inflation and interest rates may stay higher than the market expects. And finally, we still do not know the full effects of quantitative tightening on this scale,” wrote JPMorgan CEO Jamie Dimon.

Next week, Goldman Sachs, Bank of America, and Morgan Stanley will report earnings. Investors will be keenly watching their net interest income and overall performance.

NEWS
Market Movements

• The NBA has reportedly finalized a media-rights deal with NBC, Amazon, and ESPN worth $6.9 billion per season through 2036. The previous deal paid $2.7 billion per season

• Apple ($AAPL) has struck a deal with EU antitrust regulators to allow competition to use its tap-and-go payments technology, ending a lengthy investigation

• Grindr ($GRND) shares have surged 113% over the past year, outpacing the competition. In comparison, Bumble ($BMBL) is down 53% over the same period. Match Group ($MTCH) has also seen a decline, with its stock down 30% over the past year

• General Motors ($GM) will invest $900 million to retool its Michigan auto plant for electric vehicle production

• Investors bought 15% of homes sold in the US during the first quarter, setting a new record

• Costco ($COST) is raising its membership fees for the first time since 2017. US and Canada memberships will go up by $5 to $65

• Apple ($AAPL) is struggling with its Vision Pro sales, which have dropped by 75% since last quarter

• The producer price index (PPI) rose 0.2% last month, surpassing the 0.1% economists had predicted—a sign that inflation may still be a concern

AIRLINES
Frequent Flyers, Infrequent Profits: Delta’s Rough Landing

No matter how packed the overhead bins get, Delta, America’s profit king in the skies, is struggling to stay soaring this summer. Yesterday, the airline reported underwhelming Q2 profits, proving that even at the peak of travel season, the industry is still experiencing turbulence.

Delta’s Q2 profit clocked in at a measly ~$1.3 billion, a 29% nosedive from last year and way below analysts’ flight plans. And it’s not because people aren’t flying—oh, they are. The TSA reported a record 3 million travelers the Sunday after the Fourth of July. So why the profit plunge?

Blame it on supply and demand. Post-pandemic, airlines scrambled to keep up with the travel surge by beefing up fleets, staffing up, and adding flights. Now, they’re stuck with too many seats and not enough passengers to fill them, leading to steep discounts that slice into profits already battered by high labor and fuel costs.

Big picture: Delta’s woes won’t strip you of your beloved in-flight Biscoff cookie and ginger ale, but they spell trouble for airlines without Delta’s cushy margins. While Delta rakes in more than half its revenue from loyalty programs and first-class fares, budget carriers are getting pummeled as their rock-bottom ticket prices dive even lower. Fasten your seatbelts—this ride’s about to get bumpy.

Calendar
On The Horizon

Earnings season is here, folks, and it’s about to rain quarterly reports. Starting Monday, companies from every corner of the market will be flaunting their numbers.

Last quarter, the S&P 500 flexed its muscles and crushed expectations. But hold off on the victory laps. Q2 has been a different animal, with consumers grappling with sky-high prices. This could mean leaner profits and fewer companies knocking Wall Street's socks off.

So, grab your calendars and mark these dates for the big (and not-so-big) names dropping their earnings next week:

Monday: Goldman Sachs, BlackRock, and the sweet surprise of the day—Rocky Mountain Chocolate Factory.

Tuesday: Financial titans Bank of America, Morgan Stanley, PNC Financial Services, and Charles Schwab will be in the spotlight. We’ll also hear from UnitedHealth Group, Progressive, and J.B. Hunt.

Wednesday: ASML kicks off semiconductor earnings, while Citizens Bank, Ally Financial, Synchrony Financial, and U.S. Bancorp wrap up the big financials. Plus, Johnson & Johnson, Kinder Morgan, United Airlines, and Alcoa join the earnings parade.

Thursday: The busiest day features heavyweights like Netflix, Domino’s Pizza, Abbott Laboratories, Nokia, D.R. Horton, Intuitive Surgical, and a slew of others. Stock up on coffee.

Friday: The week wraps up with American Express, Schlumberger, and Halliburton.

Buckle up—it’s going to be a rollercoaster!