While earnings, economic data, and geopolitics are dominating this morning.
CPI cooling in the latest month with the core monthly rate unchanged for the first time in 5 years, and earnings from the big banks are rolling in as tech and AI stocks kicking off the week in the red and of course when it comes to geopolitics, the Middle East does remain in focus.
Now Trump has reinstated a naval blockade in the Strait of Hormuz, and we're looking at both WTI and Bread prices higher by about 3%.
Morning here to break down the true winners as well as losers as Christine Short, head of research at Wall Street Horizon, ATMX company.
Christine, great to have you here.
Thank you so much for joining me.
Thank you so much for having me.
Well, it is a busy morning to say the least, and we're looking at mixed trading for the major US stock averages, and I think it really does paint a picture of what's happening with IPM down by a staggering 25%.
But first and foremost, what do you make of the inflation figures?
Yeah, I mean much better than expected.
Right, we saw that drop of 0.4% as you mentioned.
We were expecting a drop of about 0.1%.
This is the biggest monthly drop since April 2020.
Some of that was expected, right?
Oil prices retreated last month and many are warning, you know, not to make one month a trend because, as you mentioned, there's this potential blockade, potential tolls at the Strait of Hormuz.
The ceasefire ended on July 8th, so the.
Numbers are backwards looking for June.
We'll see how this trend continues, but certainly the markets are happy to see it lower than expected, and we're getting more in line with what the Fed would expect.
But I wouldn't anticipate the Fed make any moves off of this because again it is a one month and now with, you know, activity happening again in Iran, we don't know what those July numbers are going to show.
Yes, and Christine, absolutely we are looking at energy prices higher again this morning, but we are well off.
Those highs that we saw earlier this year in the 2nd quarter of 2026, so we do have to keep all of that in mind.
But another area we have been paying attention to is the financials, especially on the heels of those big bank earnings.
Many names that beat their expectations reporting blockbuster quarters.
But of course the question is, are some of these gains sustainable?
So what are the key takeaways from the big banks?
Yes, so you talked about winners and losers and all of the.
5 big banks that reported today were winners, right, as you mentioned, they all beat on the top and the bottom line.
We're just waiting for Morgan Stanley out tomorrow.
A little bit of volatility in the prices, as is normal heading into the earnings calls.
We're in Goldman Sachs calls happening right now.
We've got Citigroup.
We've got Wells Fargo.
So analysts and investors really want to wait to hear more of the management commentary, but overall stellar numbers.
All of the tailwinds we were expecting were there, so like investment.
Banking fees, of course, you know, even better than anticipated because of IPO activity, M&A activity returning in the 2nd quarter.
I think you saw Goldman Sachs and Bank of America grew investment banking fees over 50% year over year.
JPMorgan was somewhere about 30%, so incredible figures.
Some other areas assets under management grew, as we know, assets increased in value over the second quarter, so that certainly helped.
And then trading revenues.
It was actually impressive to see some of those equity trading desks reporting 80+% growth.
Fixed income a little light for some of the banks.
JPMorgan came in at about 6% fixed income growth.
We thought that might be a little bit higher.
That fell slightly short of expectations, but overall these numbers are stellar, and what I would say the big takeaways are all the CEOs talked about the strength of the economy.
Usually you see Jamie Dimon at JPMorgan be a little more cautious.
And perhaps when we look through the transcripts from the call we'll see some of that, but there was a lot of commentary about the strength of the economy and the CFOs more surprising to me was the CFO commentary on the strength of the consumer.
The only I saw a CFO of Wells Fargo spoke about if we do see higher inflation, oil prices return, the situation in money not get sorted, that could start to impact consumers, but we haven't seen that yet.
Yes, and you highlight a lot of those key points and of course we'll be listening in on some of those earnings calls and looking at the notes and commentary from management from those big banks.
But at the same time we will be hearing from some tech names as well.
And given the fact that IBM shares are lower this morning, I do want to get your take very quickly on earnings expectations heading into the rest of the season, in particular with what's happening with the AI trade.
Yes, so overall expectations are S&P 50.
DPS is anticipated to grow about 24% year over year.
That would be the second consecutive quarter of double digit, sorry, the second consecutive quarter of 20+% growth, the seventh consecutive quarter of double digit growth.
Revenues also very strong, backing that up about 12.5%.
What I think is most interesting coming into this season is how much analysts increase their estimates.
Usually, you know, we see analysts ratchet down because companies give pretty conservative guidance.
We saw them increase estimates by 3.4%.
That was the most.
2020 since we were coming out of the pandemic, right, and so those are some pretty impressive numbers.
A lot of that growth is once again expected to be driven by the AI names, right?
Some of the hyper scales, certainly the chip makers are in view, Nvidia, Micron, and so tech is still expected to be one of the big drivers.
But you're right, this was surprising news from IBM.
It doesn't really set the stage super well for some of the tech names, and we know investors judge those tech names very harshly because of the increase in CapE in the AI buildout.
This is the quarter where investors want to see the RRI.
Like is that investment turning into revenues, software subscriptions, cloud revenues, and so the bar is very high for tech.
But right now analysts anticipate they'll still be one of the leading sectors on the top and the bottom line.
Yes, and of course when it comes to the AI trade, there are so many layers and different parts of the ecosystem, so we will have to wait and see how all of this shakes out as we head into the second half.
But when it comes to the American consumer, you were Mentioning how some of these banks are talking about the American consumer.
So later on this morning we will be hearing from Fed chair Kevin Warsh.
He will be testifying on Capitol Hill for 2 days.
And of course we have taken a look at his statement ahead of his testimony.
But given the fact that we're looking at this case-shaped economy here in the US for viewers out there who are wondering what are the impacts, what are the implications from what we're seeing in terms of the data, what would you say to them?
Yes, and I think that's what a lot of the CFO.
Didn't in their brief commentary and perhaps we'll get to it more questions on the call, is that K-shaped economy?
The consumers are resilient, but what income cohort are we talking about?
Because we know higher income continues to carry the overall consumer.
The middle to lower income consumers still struggles, and we know that from looking at discounters.
We know, look, Walmart just lowered prices on thousands of products because the consumer they cater to is still struggling and just focusing on necessities.
I will say despite those comments on the consumer.
Of the banks such as JPMorgan, while net charge off rate did fall from last, that's the money that's uncollectible that they're not going to ever get back, that did fall from Q1 on collectible credit card debt.
That is the revolving balances on credit cards did increase, and that's the money that's left over, the balance that's left over on a credit card at the end of the billing cycle.
So we're seeing those balances pile up and again you have to be looking at different income cohorts and like I said, Wells Fargo CFO said.
The consumer is strong, but there are things that could throw that off if this war continues, if oil prices rise once again, if interest rates go higher.
Those are all impacts that we're going to see on the consumer, particularly on the lower end.
So the question we have to ask is how much longer can the higher income consumer. to hold everything together and of course that also does hinge on what we see in terms of equity market performance so as we head into the second half of this year, which is hard to believe where we see the leaders as well as the laggards in terms of sector.
Yes, Truman sector growth, I mean tech again is still leading.
That all rides on the earnings and what they're able to put up.
Of course we saw, if you're looking backwards at earnings, energy was a leader last quarter.
Could they pick up again?
We saw them fall a bit because of oil prices falling in June, but we're not quite sure what's going to happen with that picture through the second half of the year.
So I'm still looking at tech, and look, there's always winners.
Sector, the consumer, there will certainly be winners.
We see Walmart as a winner because they are getting higher income shoppers to trade down and so they've become this one stop shop, not just for necessities but for discretionary.
So we see them continuing to win in this environment.
Well, there are a lot of moving parts as well as a lot of headlines to sift through this morning.
So Christine, I appreciate your time and thank you so much for breaking it all down for us.
Of course, thank you for having me.
