Wall Street Breakfast: What Moved Markets

- The S&P 500 wrapped up its best week since July, closing at its highest level in a month, as a series of upside earnings reports from Wall Street's biggest banks outweighed negative macro sentiment. Financial heavyweights Goldman Sachs, J.P. Morgan and Bank of America were among the firms topping consensus estimates. Economic data also eased some concerns this week, with U.S. retail sales data coming in stronger than expected and initial jobless claims posting their lowest numbers since the pandemic began. U.S. Treasuries fell as the 10-year yield inched above 1.57%, but more telling was the two-year yield climbing to its highest since February 2020.

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Top News Shutterstock The S&P 500 wrapped up its best week since July, closing at its highest level in a month, as a series of upside earnings reports from Wall Street's biggest banks outweighed negative macro sentiment. Financial heavyweights Goldman Sachs, J.P. Morgan and Bank of America were among the firms topping consensus estimates. Economic data also eased some concerns this week, with U.S. retail sales data coming in stronger than expected and initial jobless claims posting their lowest numbers since the pandemic began. U.S. Treasuries fell as the 10-year yield inched above 1.57%, but more telling was the two-year yield climbing to its highest since February 2020.       Financials Bank earnings It was a solid first week of Q3 earnings as the largest U.S. banks posted another robust round of quarterly results. A rebounding economy allowed lenders to release more cash they had set aside for pandemic losses, while equity financing and trading boosted bottom lines. Don't forget about the deal bonanza that continued to ring the register for the banks' Wall Street operations, with a hefty quarter for mergers-and-acquisitions fees. JPMorgan (NYSE:JPM) - Q3 net interest income of $13.2B, driven by balance sheet growth and higher rates, while Asset & Wealth management net revenue came in at $4.3B (+5% Q/Q and +21% Y/Y). Bank of America (BAC) - Regained the organic customer growth momentum it experienced before the pandemic, as well as reporting a record quarter for M&A transactions. Wells Fargo (WFC) - Consumer Banking & Lending net income of $2.5B climbed 15% from Q2 and 181% from Q3 2020, while total outstanding loans were down from a year ago, but up from Q2. Citibank (C) - Spending on Citi credit cards rose 20% Y/Y to a record and continued climbing from the summer, though "strong consumer balance sheets impacted lending." Morgan Stanley (MS) - Topped expectations as investment bankers scored their best quarter ever, with the division posting a 67% increase in revenue to $2.85B. Commentary: "The banks painted a strong and healthy picture of the U.S. consumer," said Edward Moya, senior market analyst at Oanda. "Wall Street can't turn negative on the economy after seeing reserve releases, moderating trading revenue, mixed loan growth, and a consumer willing to take on debt."       Communicated Inflation: Between The Fed's Rock And The Economy's Hard Place While Chairman Powell continues to stall, the rise in the cost of goods is undercutting the administration's hope for a continued robust economy. With no room for error, the Fed is now trapped as it tries to tame the inflation beast. This leaves your portfolio caught between a rock and a hard place. The good news is you have a chance to soften the blow and come out ahead by making some key moves today…Continue Reading Energy 'Bumpy ride' Many questions have surfaced in recent weeks over the pace of the energy transition as a power crunch takes shape across the globe. While many arguments are covering specific policy details or green efforts, all appear to be in agreement that the world is not spending enough on future energy needs. Some of those risks were detailed in the new World Energy Outlook from the IEA, which advises governments on energy policy. Quote: "There is a looming risk of more turbulence for global energy markets," said IEA Executive Director Fatih Birol. "Spending on oil and natural gas has been depressed by price collapses in 2014-15 and again in 2020. As a result, it is geared towards a world of stagnant or even falling demand. If the supply side moves away from oil or gas before the world's consumers do, then the world could face periods of market tightness and volatility. Alternatively, if companies misread the speed of change and over-invest, then these assets risk under-performing or becoming stranded." "The energy transition is not being handled properly," OPEC Secretary-General Mohammad Barkindo declared last week at the Energy Intelligence Forum. "And hence we are beginning to see the fallout." The fundamental problem has been the "hysteria" that has prompted a move away from fossil fuels, shrinking much-needed investment, even in developing countries. That being said, "we call on the leading polluters, the leading emitters" to pause and work on sustainable solutions when they gather for the November COP26 climate change summit in Glasgow, Scotland. Outlook: Oil prices are up more than 60% in 2021, while U.S. natural gas prices have more than doubled this year. "At the same time, spending on clean energy transitions is far below what would be required to meet future needs in a sustainable way," the IEA added in the report, advocating for annual spending on clean energy to triple to $4T by the end of the decade in order to achieve net-zero emissions by 2050. Emissions can drop by 40% using technologies that pay for themselves, according to the IEA, though the majority of the investment (nearly 70%) would have to come from private developers and Wall Street. This could also create "huge economic opportunities" for clean energy technologies such as wind turbines, solar panels, fuel cells, electrolyzers and a new era of batteries. (23 comments)       Consumer Santa's early start The Port of Los Angeles, one of the busiest ports in the country, is starting to operate 24 hours a day and 7 days a week to ease cargo bottlenecks that have led to shortages and higher consumer costs. While the neighboring Port of Long Beach, Calif., also started doing a 24/7 schedule last month, major ports in Europe and Asia have operated around the clock for years. The latest change was announced by the White House as it seeks to alleviate supply chain issues ahead of the holidays, though the increase in capacity will require cooperation from major U.S. companies like Walmart (WMT), FedEx (FDX) and UPS (UPS). What happened? The root of the problem goes back to the beginning of the pandemic in spring 2020, when consumer demand slumped and shipping lines canceled sailings between Asia and North America. When demand came back in the summer, there were thousands of empty containers stuck in the U.S., and by the fall of 2020, the West Coast freight networks were bursting at the seams to handle the surge in imports. A wave of COVID-19 cases in Southern California over the winter exacerbated the issue by causing a labor crunch, with docks, warehouses and truckers that handled the cargo unable to find enough workers. Companies like Amazon (NASDAQ:AMZN), Target (NYSE:TGT), Pottery Barn (NYSE:WSM), Ulta Beauty (NASDAQ:ULTA) and Gap (NYSE:GPS) are even offering discounts - or starting holiday advertising - six weeks before Black Friday. The goal here is to stretch out the year-end shopping season, as supply chain challenges could leave them with empty shelves closer to the holidays. The firms also have a load of goods that they brought in early, but with limited warehouse space available, they need consumers to buy the stuff to top off their cash balances.

Stats: According to a RetailMeNot survey of almost 1,100 consumers, 37% of shoppers began their holiday shopping between August and September (if not earlier). Another 22% said they would start shopping in October, while 24% planned to begin in November ahead of Thanksgiving. Americans are expected to spend about $1.3T this holiday season, per the latest forecast from Deloitte, marking a 7% to 9% increase over last year. (17 comments)

     

Central Banking

Tapering timeline

Fed officials signaled last month that they should start reducing emergency pandemic support for the economy in mid-November or mid-December, according to the latest FOMC minutes. The program could then end by mid-2022, though several participants said they'd prefer a quicker pace of reducing purchases. Keep in mind that the central bank is currently purchasing at least $80B per month of Treasury securities and at least $40B per month of MBS.

What it means: "A number" of FOMC officials said they believed that the test of "substantial further progress" toward maximum employment had been met. That's important because most Fed members also believe that the price stability requirement had already been fulfilled. Central bankers are looking for both of the standards to be met before the Fed reduces its rate of asset purchases.

"We still think November, but one month isn't going to matter to markets at this point," noted Lawrence Gillum, fixed income strategist for LPL Financial. "There was some interesting discussion on lift-off though and it looks like the Committee remains divided. The future make-up of the Committee only adds uncertainty to when lift-off will actually take place."

Wild card: While the inflation outlook was raised in the near term after much discussion, Fed staff continue to predict the recent acceleration is "transitory." CPI data on Wednesday showed headline prices rising by 5.4% Y/Y in September, marking the fifth consecutive month of annual increases of 5% or more. However, stocks continued to climb during the session as traders appeared to spend much of the last few weeks positioning themselves for a flaming number. (65 comments)

     

Cryptocurrency

Bitcoin business

The SEC could decide as early as Monday to allow American ETFs to hold Bitcoin (BTC-USD) futures, making it easier for small investors to gain exposure to the cryptocurrency. The agency is expected to approve an amended filing submitted by ProShares on Friday to launch the ProShares Bitcoin Futures ETF. Several other ETF firms have also filed to launch similar funds and will be watching closely to see whether regulators green light ProShares' plan.

Snapshot: Many investors have been anticipating the ability to trade crypto assets through exchange traded funds, but the SEC has yet to allow ETFs to directly hold things like Bitcoin. In the past, the agency has cited investor hazards like liquidity, manipulation and extreme price swings. The list of issuers that are currently anticipating the approval include names such as Valkyrie, Galaxy Digital, VanEck, ETF Series Solutions, ARK Invest, Invesco and ProShares.

"Before investing in a fund that holds Bitcoin futures contracts, make sure you carefully weigh the potential risks and benefits," the SEC wrote in a tweet late Thursday. "Check out our Investor Bulletin to learn more."

Movement: All the hype is adding to bullish crypto sentiment as Bitcoin traded above $60,000. At that level, the token has doubled in value this year and is near April's record high of $64,895. While the proposed Bitcoin-futures ETFs won't invest directly in crypto, issuers aim to trade futures contracts based on Bitcoin. (77 comments)

     

U.S. Indices
Dow +1.6% to 35,295. S&P 500 +1.8% to 4,471. Nasdaq +2.2% to 14,897. Russell 2000 +1.7% to 2,271. CBOE Volatility Index -13.2% to 16.3.

S&P 500 Sectors
Consumer Staples +1.2%. Utilities +1.4%. Financials +1.2%. Telecom -0.4%. Healthcare +0.8%. Industrials +1.9%. Information Technology +2.6%. Materials +3.6%. Energy +1.2%. Consumer Discretionary +3.6%.

World Indices
London +2.% to 7,234. France +2.6% to 6,728. Germany +2.5% to 15,587. Japan +3.6% to 29,069. China -0.6% to 3,572. Hong Kong +2.% to 25,331. India +2.1% to 61,306.

Commodities and Bonds
Crude Oil WTI +4.% to $82.53/bbl. Gold +0.6% to $1,768.2/oz. Natural Gas -2.6% to 5.422. Ten-Year Treasury Yield -0.1% to 130.95.

Forex and Cryptos
EUR/USD +0.29%. USD/JPY +1.81%. GBP/USD +1.02%. Bitcoin +11.8%. Litecoin +5.4%. Ethereum +8.3%. Ripple -1.5%.

Top Stock Gainers
Xiaobai Maimai (NASDAQ:HX) +107%. Jasper Therapeutics (NASDAQ:JSPR) +106%. Adamas Pharma (NASDAQ:ADMS) +75%. Protagonist Therapeutics (NASDAQ:PTGX) +70%. Huadi International Group (NASDAQ:HUDI) +69%.

Top Stock Losers
Aerocentury (NYSE:ACY) -32%. Aerovate Therapeutics (NASDAQ:AVTE) -30%. Cortexyme (NASDAQ:CRTX) -28%. Futu Holdings (NASDAQ:FUTU) -27%. Pavmed (NASDAQ:PAVM) -26%.

Where will the markets be headed next week? Current trends and ideas? Add your thoughts to the comments section.

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