Investor attentions this week are very focused on Q1 earnings, which kicked off on Friday with solid results from big Wall Street banks. In fact, JPMorgan Chase posted a +52% increase in profits along with record revenue. The latter was boosted by a nearly +50% increase in interest income, which also hit a new record. Profits also rose at Citigroup and Wells Fargo.
Results for all three big banks topped expectations thanks largely to an increase in deposits as well as higher loan income. All three also forecast lending income would continue to grow this year, though they are mixed on whether outsized deposit growth will continue. Much of the deposit growth in Q1 stemmed from outflows at small and midsize banks following the collapse of Silicon Valley Bank and Signature Bank in March. This trend is expected to weigh on Q1 results from smaller US banks, many of which report this week.
Results from big Wall Street firms also continue this week with Charles Schwab today (Monday), Bank of America and Goldman Sachs on Tuesday, and Morgan Stanley on Wednesday. Overall, Wall Street analysts currently expect Q1 earnings for S&P 500 companies to decline by around -6.5%, which would follow a -3.2% year-over-year decline in Q4 2022.
Keep in mind, companies have not been raising prices like they were in previous quarters when they were more easily able to maintain pricing power due to pandemic supply chain snags and high consumer demand. With consumers tightening their belts and inflation in general trending lower, price hikes seem to have largely hit a ceiling. That means higher profits need to be generated by more complicated and often times tougher actions, like lowering costs and increasing productivity.
The sector expected to post the largest decline in earnings is "basic materials," with analyst's forecasting a nearly -42% drop. That's followed by "communication services" - which includes big tech companies like Google, Meta, and Netflix - with a projected decline of just over -17%.
At the other end of the spectrum, the energy sector is expected to post earnings growth of almost +14%, followed by the financial services sector with projected growth of around +5%.
Other earnings the trade will be watching closely this week include Netflix, United Airlines, Johnson & Johnson, and Lockheed Martin on Tuesday. Followed on Wednesday by Tesla, IBM, Lam Research, Las Vegas Sands, Discover Financial, and Ally Financial. Thursday we hear from Blackstone, American Express, Union Pacific, AT&T, and Taiwan Semiconductor. Bottom line, these next three weeks are going to be big for US corporate earnings.
There are also a lot of geopolitical headlines and tensions that will be closely monitored this week.
World Natural Gas Supply Shifts From Shortage to Glut: The world is becoming awash with natural gas, pushing prices lower and creating an overabundance of the fuel in both Europe and Asia — at least for the next few weeks. The trend has been a rare sight over the past year since the war in Ukraine upended energy markets. Now, inventories are filling up from South Korea to Spain, a result of mostly mild winter weather and efforts to reduce consumption. Tankers filled with liquefied natural gas — a stopgap in replacing lost Russian pipeline flows — now often struggle to find a home, spending weeks idling at sea. All eyes are on the summer weather, as any extreme heat and droughts could boost consumption. By the beginning of the third quarter, importers will start to prepare for the winter, heating up competition for LNG cargoes, Custer said. But for now, the glut is spreading. In Spain, home to the most LNG terminals in Europe, gas storage is already 85% full, meaning the nation’s market could quickly turn to overcapacity and weigh on spot prices, RBC Capital Markets said Source Bloomberg
Apartment Building Investments Grow Risky as Rents Stagnate: Apartment building fault lines are starting to emerge for investors who paid top dollar for the assets that depend on substantial rent increases and persistent low interest rates to achieve profitability. In 2021 and 2022, investors purchased $355.5 billion and $299.2 billion worth of apartment buildings, according to MSCI — far surpassing the previous $194 billion record of multifamily sales in 2019. Some of the most speculative investment deals were done with mortgages shoveled into what's known as commercial-real-estate collateralized loan obligations, or CRE CLOs. These loans generally stretched two or three years, had floating interest that rose sharply as the Fed hiked rates, and featured higher leverage levels that covered a larger portion of an asset's purchase price. There are signals of stress. A Trepp analysis found that in Washington DC, for instance, 71.9% of multifamily properties financed with CRE CLOs didn't earn enough rent to cover their debts. In April, Green Street estimated apartment-building prices had declined by -21% from a year ago. According to MSCI, $278 billion worth of loans tied to apartment buildings are set to reach maturity in 2023 and 2024, the largest total among all segments of the commercial-property market. Source Insider
India’s Population Surpasses China’s, Shifting the World’s "Center of Gravity": China’s population has reigned as the largest in the world for more than two centuries. Now India is taking its place, heralding a major shift in the global order. The United Nations has said India’s population is projected to surpass China’s sometime this year. Many demographers estimate it could happen this month, if it hasn’t already. India’s population is expected to reach 1.429 billion by the end of the year, according to the U.N. China will fall to second place, with 1.426 billion people. Both dwarf the U.S. at a projected 340 million. India’s population is expected to keep growing for the next four decades, peaking at nearly 1.7 billion in 2063. China’s population is projected to shrink rapidly. By the start of the next century, India’s population is expected to be double that of China’s. In many ways, India looks like China did 30 years ago. It has a rapidly expanding working-age population, with 610 million people under age 25, and relatively few older people to care for. It will be the only nation with a big enough labor force to approach China as the world’s factory floor. About 203 million people, or 14.3% of China’s population, this year are 65 and older, up from 87.5 million in 2000. Source WSJ
New NFL Approved Helmet Designed to Reduce Quarterback Concussions: The first quarterback-specific helmet designed to help reduce concussions has been approved for use by the NFL and NFLPA, The Associated Press has learned. The helmet, manufactured by Vicis, reduces severity of helmet-to-ground impacts, which league data says account for approximately half of quarterback concussions, including the one suffered by Miami's Tua Tagovailoa last season when his head slammed violently against the turf during a Thursday night game against Cincinnati. "We've now analyzed with our engineers and with the players' association more than a thousand concussions on field, we have a pretty good database of how these injuries occur," NFL executive Jeff Miller told the AP about the helmet-to-ground impacts. "This helmet performs better in laboratory testing than any helmets we have ever seen for those sorts of impacts." It's unknown how many quarterbacks will switch to the new QB-specific helmet. The only other position-specific helmet already approved is the Vicis Zero2-R Trench for offensive and defensive linemen. Source ESPN
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