Bank earnings keep rally mode going, homebuilder sentiment plunges, bitcoin bottom

Wall Street is starting to find its footing as investor Fed tightening fears eased and after both strong banking earnings from Goldman Sachs and Bank of America. It is the blackout period for the Fed and it seems last week’s comments from Bostic and Bullard were enough to convince markets a 100 basis-point hike is not justified right now.

Bank Earnings

Shares for both Goldman Sachs and Bank of America are off to a good start after strong results and no immediate announcements on curtailing their respective share buyback programs. ​ Goldman Sachs fixed income operations crushed it, posting a USD 3.61 billion in revenue, which was much higher than the USD 3.11 billion consensus estimate. Goldman’s wealth and consumer net revenue was key to saving this quarter. ​ ​

Bank of America posted solid net interest income results and that could continue if the Fed remains committed to fighting inflation. BofA had more costs than expected as they had to deal with multiple regulatory probes. ​ ​ ​ ​ ​ ​ ​ ​ ​

Consumer

BofA CEO Moynihan said, “Consumers continue to spend at a healthy pace even as time has passed since they received stimulus.” He added that spending is up 10% and transactions increased 6% in the first two weeks of July.

Goldman Sachs announced they will put USD 667 million away for loan-loss provisions, which is much higher than JPMorgan’s USD 428 million. ​ A weakening economy is having all the big banks build up their reserves for bad loans.

Housing

The latest NAHB home builder survey shows the outlook for the housing market is for it to cool quickly. ​ Builder sentiment collapsed to 55 in July, much worse than the most pessimistic estimate. ​ This was the biggest drop since the COVID shock drop of 42 points in April 2020. Surging borrowing costs led to the drop in mortgage applications and inventories are starting to increase. ​ The housing market is cooling faster than homebuilders expected and that should weigh on D.R. Horton, Toll Bros. and Lennar.

Crypto

Bitcoin haters have been quiet for a few days. ​ Bitcoin has recaptured the USD 22,000 level as some short-sellers need to call it quits. ​ Wall Street is enjoying a positive risk-on mood that is good news for cryptos. ​ Cryptos are starting to look attractive now that the economy is looking a little better as expectations for Fed tightening eased.

So much of Wall Street was expecting one last major plunge, with some eyeing USD 14,000 area, others the psychological USD 10,000 level, with the more pessimistic targeting the USD 7,500 level. If Bitcoin continues to stabilize here over the next two weeks, the crypto winter could be over. ​ Market positioning became extreme and that could allow for the bottom to have been made if the institutional money buys in.

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