Stocks rally as earnings keep supporting soft-landing hopes

• Apple is reportedly committing to grow its own generative AI tools
• So far it has been a solid start to earnings season
• Odds grow for the Fed to be one and done on rates

US stocks are rising as soft-landing hopes grow as the regional banks provide stabilization signs and on hopes that inflation will continue to cool.  It doesn’t look like we will see a major credit crunch anytime soon and that could mean good news for the recovery that takes hold next year. 

Goldman Sachs delivered an earnings miss but optimism remains for more IPOs and deal making.  Regional banks, Ally Financial and Citizens Financial delivered EPS beats and provided some optimism for the sector as a whole. Earnings season is heating up and so far it has been a very good start despite Goldman’s results.

Goldman

The big banks saved the worst earnings report for last.  Goldman saw profits tumble by 58% in the second quarter.  Goldman shares initially tumbled but recovered following the earnings call.  Goldman’s stock market turned around on CEO Solomon’s optimism for the pickup in activity and that reflects the hope that is growing for the broader economy.    

This was a bad quarter for Goldman Sachs and that should not have come as a surprise considering how equity capital markets have been and the slowdown Wall Street has seen with M&A.  Impairments were impacting the results, $485 to real estate and $504 tied to GreenSky.  Considering Goldman had the worst earnings report out of the big banks, it is impressive that share prices are not too far from the June high. 

UK

The British pound is considerably weaker following the surprisingly lower-than-expected inflation print.  So many, including yours truly expected headline inflation to remain above the 8% level, which was supposed to be met with a large half-point rate hike from the BOE.  The headline rate fell to 7.9%, the lowest level since March 2022, which was below the consensus range of 8.0% to 8.4%.  The British pound is violently lower as traders pare down their bets on how high the BOE will take rates, with most anticipating borrowing costs to peak below 6%. 

Disinflation is happening everywhere and that is good news for stock market bulls. UK prices are still high, but cooling inflation could support the argument that the BOE will be done tightening after the September meeting. 

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