Mid-Market Update: A busy earnings start, Sentiment Rebounds, Tesla woes remain, Oil’s good week, Gold shines, Crypto breakout?

US stocks were initially softer after the banks delivered a disappointing start to earnings season along with a downbeat outlook for the economy.  Stocks are heading lower as Wall Street anticipates earnings will decline significantly and margins will be tested. This is the quarter that companies will announce layoffs and cost-cutting measures as the economy still appears to be recession-bound.    

Stocks pared losses after consumer sentiment rose to a 9-month high.  Plunging gas prices were a key catalyst but that might not last much longer if oil continues to rally.   

Sentiment

The Michigan consumer sentiment reading surged to 64.6, well above all 52 estimates and a significant improvement from the prior reading of 59.7.  Current economic conditions also improved even as recession risks clearly remain in place.  Inflation expectations improved for the year ahead, while long-term expectations ticked higher. 

JPMorgan

JPMorgan delivered disappointing results as revenues came in lower than analysts’ estimates across equity, fixed income, currency, commodities (FCCC), and investment banking. JPMorgan’s net income for the quarter surged to $11.0 billion or $3.57 per share. Net income was supported by surging rates and on loan growth.  Managed revenue rose 17% to $35.6 million above the consensus estimate of $34.3 billion estimate, but that did benefit from a $914 million sale of Visa B shares and $874 million of securities losses.  Many traders focused on provision for credit losses, which surged 49% quarter over quarter to $2.29 billion, well above the estimate of $1.96 billion. 

CEO Dimon’s earnings release comments said, “The U.S. economy currently remains strong with consumers still spending excess cash and businesses healthy. However, we still do not know the ultimate effect of the headwinds coming from geopolitical tensions including the war in Ukraine, the vulnerable state of energy and food supplies, persistent inflation that is eroding purchasing power and has pushed interest rates higher, and the unprecedented quantitative tightening.” 

During the Q/A, Dimon added that, “It may be a mild recession, it may not.” 

Other Banks

Wells Fargo earnings were slashed in half as they build-up reserves and had massive settlement costs. It is no surprise that the mortgage dependent bank struggled as refinancing activity struggled as mortgage rates surged. 

Citigroup shares were dragged down after profit dropped 21% and as the bank prepares for credit losses. 

The overall takeaway from the banks is that recession fears are warranted and that earnings will disappoint this quarter.

Tesla

Tesla appears to be getting desperate as it cuts prices across models sold in the US.  The goal is to allow car buyers to take advantage of a $7500 EV tax credit, but it will eat at margins and raise questions about how confident they are with their outlook.  Discounts to the US and major European markets for some is a sign that demand is falling off a cliff.  Tesla shares are holding onto the $100 level, but if risk aversion remains in place, that could be tested.

Oil

Crude prices are poised for a weekly gain as the global economic outlook improves following China’s reopening. Energy traders are starting to price in a little bit more crude demand coming out of Europe and not just China.  The oil market is looking like it will remain tight as the world’s two largest economies respective outlooks have dramatically improved over the past couple of weeks; The US might have a shallow recession and China’s reopening is gaining momentum. 

Gold

Gold prices are rising as Wall Street grows confident that the Fed is almost done with raising rates.  The University of Michigan sentiment report showed one year inflation expectations fell to the lowest levels since April 2021.  Non-interest bearing gold is loving the slide in bond yields and that could continue as earnings come in softer-than-expected. 

If gold can comfortably close above the $1900 level, that could be a very bullish signal for the rest of the month. Gold should have strong resistance at the $1950 region. 

Crypto

Guess who’s back?

Back again

Bitcoin’s back

Tell a friend

Wall Street is very confident that the end of the Fed’s tightening cycle is upon us and that is providing some underlying support for crypto. Stocks are a bit under pressure as earnings risks remain front-and-center, but that shouldn’t have much of an impact on crypto.  Unless we hear some strong hawkish pushback from the Fed or if commodity prices surge, crypto traders should not be surprised if Bitcoin is able to extend its recent gains.  The $18,500 level was critical resistance for Bitcoin and if it can stay above that level over the next few sessions, that could awaken some dormant long-term bulls.  

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