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If market swings tell us anything, it’s that investors are rattled by economic uncertainty. The outlook remains cloudy with the possibility of recession on the horizon. Big bank earnings, coming Friday, could help clear some of that fog.
Wall Street will be looking for clues about what’s to come as the Federal Reserve continues to aggressively hike interest rates and cool the economy.
What’s happening: Four of the nation’s largest banks — JPMorgan Chase
(JPM), Wells Fargo
(WFC), Citigroup
(C) and Morgan Stanley
(MS) — report third-quarter earnings before the bell on Friday. Their CEOs will also answer questions from investors, analysts and reporters about their views on the wider economy.
Banks are able to charge more for customers to borrow when interest rates go up — so in theory, this should be a good environment for them. But a weakening economy also means demand for loans is beginning to dry up. Analysts surveyed by Refinitiv expect profits to fall from the year-earlier period at all four banks.
Beyond disappointing headline figures, Wall Street analysts are focusing on three important factors: loan growth, capital adequacy, and the economic outlook.
Loan growth: The rate at which businesses borrow money from big banks doesn’t just tell us about the health of a financial institution itself. It also tells us a lot about whether businesses plan to expand over the next few months or if they’re preparing for a slowdown.
Analysts expect that loan growth stayed strong during the third quarter. “Credit risk and loan loss exposure are beginning to creep into the picture, but will not be front and center for Q3 2022 results,” wrote CFRA Research Director Kenneth Leon in a note.
But Wall Street estimates show that loan growth is expected to decelerate in Q4 and into next year.
Growth of Individual loans will likely decline, showing that Americans are beginning to feel the pinch of rising interest rates. Mortgage rates are now two times the level they were a year ago, and mortgage applications recently fell to a 25-year low.
Capital adequacy: Expect banks to take questions about how much money they have on hand. Recent upheaval in UK bond markets and negative headlines about Credit Suisse have caused concern about a “contagion” effect in the United States.
It’s unlikely the turmoil will lead to another Lehman Brothers-esque financial crisis: The 2010 Dodd-Frank Act forced banks to double their capital ratios and quadruple their liquidity. Large banks also participate in annual stress tests performed by the Federal Reserve to measure their capital adequacy.
Still, investors are worried about direct exposure to European banks.
The other issue, wrote UBS analysts in a note, “is that while banks have sufficient capital and deposit flows to support loan growth, it is less robust than it has been in recent years, and we expect banks to be less well positioned to return capital to shareholders through buybacks.” That will likely weigh on stock valuations.
Economic outlook: JPMorgan CEO Jamie Dimon has a knack for moving markets by predicting economic downturn. This week, stocks plummeted after he warned that the US could enter recession within the next six months. Expect more commentary on future outlook, and warnings from CEOs attempting to prepare investors for weaker days ahead.
Inflation won’t quit. Neither will the Fed
A key measure of inflation increased faster than expected in September, raising concerns that the Federal Reserve’s aggressive rate hikes are having limited impact in bringing prices under control, reports my colleague Chris Isidore.
The US Producer Price Index, which tracks what America’s producers get paid for their goods and services, rose at an annual pace of 8.5% in September, down slightly from the 8.7% rise in August, the Labor Department reported Wednesday. But the report showed prices rose 0.4% month-over-month.
Economists surveyed by Refinitiv had been expecting the 12-month rise in wholesale prices to slow to an 8.4% increase, and the month-to-month increase to come in at 0.2%, compared to the 0.1% decline in August.
Federal Reserve officials expressed concerns that inflation showed little sign of abating in the minutes from the central bank’s September meeting, released Wednesday. They reiterated their commitment to raising interest rates.
“Many participants emphasized that the cost of taking too little action to bring down inflation likely outweighed the cost of taking too much action,” the minutes read. “Several participants underlined the need to maintain a restrictive stance for as long as necessary.”
Federal officials are reportedly trading stock in companies they oversee
A bombshell investigation by the Wall Street Journal has found that thousands of government officials own or trade stocks that are directly impacted by the decisions their agencies make.
More than one in five senior federal employees across 50 federal agencies, from the Commerce Department to the Treasury Department in both Republican and Democratic administrations have invested in companies actively lobbying their agencies for policy changes, the investigation found.
Federal agency officials hold “immense power and influence over things that impact the day-to-day lives of everyday Americans, such as public health and food safety, diplomatic relations and regulating trade,” said Don Fox, an ethics lawyer and former general counsel at the U.S. agency that oversees conflict-of-interest rules. These trades present a clear conflict of interest and violate the spirit of the law, he told the Journal.
The bottom line: This report highlights the need for greater disclosure and trading regulations throughout the government. The same issues are also to be found in the legislative branch: There’s currently no federal statute, regulation, or rule that absolutely prohibits a Member or House employee from holding assets that might conflict with or influence the performance of official duties.
Up next
BlackRock
(BLK), Delta
(DAL) and Domino’s report third quarter earnings before the bell.
The US Bureau of Labor Statistics releases the Consumer Price Index at 8:30 a.m. ET.
Coming later this week:
▸ Earnings reports from big banks like JPMorgan Chase
(JPM), Wells Fargo
(WFC), Citigroup
(C) and Morgan Stanley
(MS).
▸ The US Census Bureau is expected to release September retail sales data.
TORONTO – Roots Corp. may have built its brand on all things comfy and cosy, but its CEO says activewear is now “really becoming a core part” of the brand.
The category, which at Roots spans leggings, tracksuits, sports bras and bike shorts, has seen such sustained double-digit growth that Meghan Roach plans to make it a key part of the business’ future.
“It’s an area … you will see us continue to expand upon,” she told analysts on a Friday call.
The Toronto-based retailer’s push into activewear has taken shape over many years and included several turns as the official designer and supplier of Team Canada’s Olympic uniform.
But consumers have had plenty of choice when it comes to workout gear and other apparel suited to their sporting needs. On top of the slew of athletic brands like Nike and Adidas, shoppers have also gravitated toward Lululemon Athletica Inc., Alo and Vuori, ramping up competition in the activewear category.
Roach feels Roots’ toehold in the category stems from the fit, feel and following its merchandise has cultivated.
“Our product really resonates with (shoppers) because you can wear it through multiple different use cases and occasions,” she said.
“We’ve been seeing customers come back again and again for some of these core products in our activewear collection.”
Her remarks came the same day as Roots revealed it lost $5.2 million in its latest quarter compared with a loss of $5.3 million in the same quarter last year.
The company said the second-quarter loss amounted to 13 cents per diluted share for the quarter ended Aug. 3, the same as a year earlier.
In presenting the results, Roach reminded analysts that the first half of the year is usually “seasonally small,” representing just 30 per cent of the company’s annual sales.
Sales for the second quarter totalled $47.7 million, down from $49.4 million in the same quarter last year.
The move lower came as direct-to-consumer sales amounted to $36.4 million, down from $37.1 million a year earlier, as comparable sales edged down 0.2 per cent.
The numbers reflect the fact that Roots continued to grapple with inventory challenges in the company’s Cooper fleece line that first cropped up in its previous quarter.
Roots recently began to use artificial intelligence to assist with daily inventory replenishments and said more tools helping with allocation will go live in the next quarter.
Beyond that time period, the company intends to keep exploring AI and renovate more of its stores.
It will also re-evaluate its design ranks.
Roots announced Friday that chief product officer Karuna Scheinfeld has stepped down.
Rather than fill the role, the company plans to hire senior level design talent with international experience in the outdoor and activewear sectors who will take on tasks previously done by the chief product officer.
This report by The Canadian Press was first published Sept. 13, 2024.
VANCOUVER – Mediated talks between the union representing HandyDART workers in Metro Vancouver and its employer, Transdev, are set to resume today as a strike that has stopped most services drags into a second week.
No timeline has been set for the length of the negotiations, but Joe McCann, president of the Amalgamated Transit Union Local 1724, says they are willing to stay there as long as it takes, even if talks drag on all night.
About 600 employees of the door-to-door transit service for people unable to navigate the conventional transit system have been on strike since last Tuesday, pausing service for all but essential medical trips.
Hundreds of drivers rallied outside TransLink’s head office earlier this week, calling for the transportation provider to intervene in the dispute with Transdev, which was contracted to oversee HandyDART service.
Transdev said earlier this week that it will provide a reply to the union’s latest proposal on Thursday.
A statement from the company said it “strongly believes” that their employees deserve fair wages, and that a fair contract “must balance the needs of their employees, clients and taxpayers.”
This report by The Canadian Press was first published Sept. 12, 2024.
MONTREAL – Travel company Transat AT Inc. reported a loss in its latest quarter compared with a profit a year earlier as its revenue edged lower.
The parent company of Air Transat says it lost $39.9 million or $1.03 per diluted share in its quarter ended July 31.
The result compared with a profit of $57.3 million or $1.49 per diluted share a year earlier.
Revenue in what was the company’s third quarter totalled $736.2 million, down from $746.3 million in the same quarter last year.
On an adjusted basis, Transat says it lost $1.10 per share in its latest quarter compared with an adjusted profit of $1.10 per share a year earlier.
Transat chief executive Annick Guérard says demand for leisure travel remains healthy, as evidenced by higher traffic, but consumers are increasingly price conscious given the current economic uncertainty.
This report by The Canadian Press was first published Sept. 12, 2024.
