JP Morgan (JPM) reported a 14% drop in fourth-quarter earnings, but beat analysts’ estimates. They posted earnings of $10.4 billion or $3.33 per share compared to $12.1 billion or $3.79 per share in the fourth quarter of last year. Analyst consensus was for earnings of $3.01 per share. Revenues exceeded expectations with trading revenue down 7% and fixed income down as well. Pre-market shares are down 3.8% despite global investment banking M&A activity hitting all-time highs in 2021 and a record profitable quarter.
First Republic Bank (FRC) beat earnings estimates by 4.66%, posting EPS of $2.02 against an estimate of $1.92 per share. Last year EPS was $1.60. Revenue increased by $287 million compared to the same period last year. The First Republic saw growth in loans, deposits, and wealth management assets. The shares are trading slightly down 1% pre-market.
Yields are slightly higher at 0.64% with the VIX up 5.5%. S&P down 0.6%. It remains to be seen how traders react. Will they be too nervous to last the weekend?
(Friday Market Open) JP Morgan (JPM), Wells Fargo (WFC), Citigroup (C), BlackRock (BLK) and First Republic (FRC)
The Battle of the Nasdaq
Technology Select Sector Index fell 2.60% despite Taiwan Semiconductor’s better-than-expected earnings
Weakness in the technology sector also held back the S&P 500 (SPX), which closed down 1.42%. The Dow Jones Industrial Average ($DJI) held up a little better but still fell 0.49%. Technology, consumer discretionary and healthcare were the lowest sectors, while utilities, industrials and consumer staples were the main and only sectors with positive returns on Thursday.
Vaccine makers declined after the Supreme Court blocked the Biden administration’s COVID-19 vaccine or testing rules for large private employers. While the government had some latitude for health care providers because they received federal funds for the Medicare and Medicaid programs, private employer requirements for companies with 100 or more employees exceeded the authority that Congress granted to the Occupational Safety and Health Administration. (OSHA). Pfizer
After soaring more than 14% on Wednesday, natural gas futures gave back most of their gains on Thursday, falling more than 12%. Apparently, traders felt that the market got a little carried away and pushed prices lower. The alleged cold snap that pushed natural gas higher could still pose a threat as fuel oil futures were able to hit a second consecutive 52-week close higher.
It would seem logical that climate change that affects natural gas and fuel oil prices would also affect electric and gas utilities. However, utilities are not sensitive to these costs as they are usually able to pass on changing costs to consumers. Instead, utilities are more sensitive to changes in yields or interest rates.
Investors typically hold utilities because of their low volatility and high dividend yields. Utilities therefore tend to perform better when investors are nervous or bearish or when yields fall. The higher yields of treasury bonds make them a more attractive investment than utilities, as they are considered safer investments. But falling Treasury yields make higher utility dividends more attractive.
That said, Treasury and utility yields have been a bit out of sync during the pandemic. Sometimes they moved in opposite directions, and sometimes they moved together. The problem has been investor nervousness about the economy as well as the prospect of a Fed rate hike.
Bring warmth: With the weather getting colder and homes warming up, HVAC (heating, ventilation, and air conditioning) may be on some investors’ minds. HVAC companies like Ingersoll-Rand
Software too soft: The S&P Software & Services Industry Index is down more than 18% from its November 2021 high. spring 2021. The group has been hit hard as investors have shifted their focus from growth to value. Many of these companies have high price-to-earnings ratios, if any at all.
Although the level of technical support could block the fall, the software group could continue to struggle if the Fed were to raise rates faster and higher than it had expected. Goldman Sachs analysts
TD Ameritrade® Commentary for educational purposes only. SIPC member.