How did the market end this week?
Mickey Dickey with this week’s market update. Now, depending how today Friday ends, we’re looking at a roughly a 3.4% increase in the NASDAQ, a 1.4% increase in the Dow, and a 1.6% increase in the S&P 500, which is solid. Now, today’s down a little bit, and that’s okay because we. You know, four days of the NASDAQ being up in about three days in a row of the S&P 500 and the Dow being up.
So having a little pullback here is not a big deal.
JP Morgan’s CEO, Jamie Dimon had an Update.
The banks came out today and they gave in line numbers from what they were anticipated to be. And of course, Jamie Dimon had his most recent update on what he thinks is gonna happen. His central case is that we are going to have a mild recession.
I guess it depends on what recession means to you. There’s a section of our economy that live in a recession or what most of us consider recession every day. Their every day doesn’t depend on what the stock market does, they already live paycheck to paycheck, and that’s basically recession every single day.
We also have another section of our economy that on a daily day basis don’t recognize anything that’s going on. They questions whether they’re gonna spend 30 or 31 days in Bora Bora. I’m not complaining about either one of them, but the majority of us live in the middle somewhere and whether there’s a true recession or whether there’s a slowdown, it’s all degrees of the same thing.
How are interest rates impacting the large banks?
But what I want to talk about are the banks this quarter. The numbers were basically in line with what we expected and the markets are kind of selling off a little bit because it ran those numbers up going into the week.
We won’t really know how the market’s gonna react to the banks for another couple of weeks what will happen is they’ll digest this and they’ll kind of anticipate it. I did want to react to this article stating “3% is the new 2%” for the Fed. (Source)
I don’t think you’re gonna hear Jay Powell talking about this. Now, whether this is really gonna be an issue or not, I do think this is gonna be a topic of conversation for some time to come, but what I want really want to focus on is one of the reasons the banks are falling is that people are considering that there’s a recession coming.
Typically banks don’t do well in recessions because there’s a lot of loan losses and other issues that have become a problem for the banking system. So you kind of have a weird dichotomy this time around with the banks because they are making more money and more profitability with interest rates going up.
But they have kind of stopped now. Yes, the federal funds rate’s gonna go up a little bit more, but in the total scheme of things, as we’ve seen mortgage rates fall in some other parts of it,the bond market has been ahead of this curve and it’s looking as far ahead. The Fed’s gonna go as high as they think they’re gonna go.
But as far as the bank earnings, if they’re right and there’s truly a recession, then you’ve gotta look at the bond market and how the bond market’s looking at the interest rates. They’re already discounting the fact that the Fed at some point is gonna have to stop and they’re gonna have to go backwards.
So if what we’re really looking for is the market to turn backwards before so that the Fed will stop and go backwards then the banks are telling the Fed what they should want to hear. The bond market is actually telling the Fed exactly the same thing that you’ve done your job, it’s time to stop, it’s time to go.
I don’t necessarily see that in the next fed meeting or even the next two, but that doesn’t mean that they’re not thinking about it.
Upcoming Earnings for Goldman Sachs.
As far as the market update, what I typically do on Fridays is look ahead to the next week. Earnings with the companies that are gonna come out next week is not a huge earnings week.
There are some good ones. I don’t look at these to buy or sell or do anything specific with. As an example, there’s nothing coming out on Monday that’s of interest to me. Again, that doesn’t mean that there aren’t companies that there isn’t something coming out, but to me there’s just nothing.
I’m looking at Tuesday, not a big day either, but what I am looking at is Goldman Sachs and Morgan Stanley. Now, somebody might say, “well you just got all the banks today” (January 13th, 2023). Well, we got the majority of the banks today, and we know what they all said is the consumers strong. They think the economy’s strong, that employment’s strong.
Everything’s strong, but they still think a recession’s coming. So that doesn’t really tell me anything other than what I already knew. And the question is, how does the market react to that? So we’ll see.
Upcoming Earnings for Morgan Stanley.
Morgan Stanley’s a little different than the banks because it’s not what you would consider a traditional bank like Citigroup or JP Morgan. Their money is more on the wealth management side of things, and they’ve really been going further and further that direction. So it’s gonna be interesting for me to see how the wealth management side of that goes. And part of it is also the M&A.
Now everybody says everything’s bad. Well, at some point, the M&A part of Morgan Stanley and any of the investment business is gonna run up to comps from last year, which weren’t great. Which is gonna make their numbers come around. So to me it’s gonna be interesting to see, I don’t expect this particular quarter to be a good one and maybe even the first quarter of this year, but at some point here, they’re gonna run into those numbers from last year and it should do well because some of that stuff should pick up this year for Morgan Stanley.
Same thing with Goldman Sachs. They’ve got a lot more of a wealth management side. Wednesday you’ve got Charles Schwab. Again, not a huge thing, but kind of tells me more of what’s going on on the retail investor and where deposits are going, how investment are going on. Thursday’s kind of the big day for the week for us.
Upcoming Earnings for Proctor and Gamble, Netflix and PPG.
You’ve got Proctor and Gamble coming out. You’ve got Netflix coming out, you’ve got PPG coming out, you’ve got Fastenal and you’ve got American Airlines. Now what’s nice about that particular day is there’s a wide variety of different companies from tech to your consumer staples. What’s gonna be neat is to hear from Proctor and Gamble to see if they’re seeing a drawdown or if the consumer is going from their main name product down to Kroger brand or Walmart brand or the Costco brand.
We got Delta today, which was somewhat disappointing, but they’re saying everything is strong. So let’s see what American Airlines does because it hasn’t had the uptick that we’ve gotten from from Delta.
And then on Friday you have Ally Bank reporting and that’s really about it.
Looking into next week.
So next week’s not a huge number. The following week we’ve got some pretty big numbers coming up. Pretty big names like Microsoft, Google, and so forth. So what I’m looking for in the next week is really kind of how the market digests what’s happening with the banks and how the market kind of looks at what the banks said.
The banks are giving, in my opinion, a very mixed message. The mixed message is the consumer’s are strong, their balance sheets are strong. But they think there’s a recession coming. Don’t know if that means anything, but again, keep an eye on the, on the bond market. Keep an eye on how the market reacts to the recession and how they think it’s gonna react to the fed.
So next week should be a very interesting week. We’ll keep an eye on that. If you have any other questions, talk to your financial advisor or us and keep with your long-term plan. Nothing is happening today or tomorrow that’s really gonna affect the long. Of anybody’s financial portfolio.
Cash is an asset class despite what anybody says. There’s nothing wrong with having some of it. We did sell out of some things that we had this week we had made some money on, and we’re just gonna sit on it until we decide that there’s an opportunity down the road.