Wells Fargo on Friday reported a 9% decline in net interest income, even though its second-quarter earnings and revenue exceeded Wall Street expectations.
Here’s what the bank did compared with Wall Street estimates, based on a survey of analysts by LSEG:
Earnings per share: $1.33 versus $1.29 cents expected
Revenue: $20.69 billion versus $20.29 billion expected
The San Francisco-based lender recorded $11.92 billion in net interest income, a key measure of what a bank makes on lending, marking a 9% year-over-year decline. That was below the $12.12 billion expected by analysts, according to FactSet. The bank said the drop was due to the impact of higher interest rates on funding costs.
Shares of Wells Fargo fell nearly 7% in Friday’s trading.
“We continued to see growth in our fee-based revenue offsetting an expected decline in net interest income,” CEO Charlie Scharf said in a statement. “The investments we have been making allowed us to take advantage of the market activity in the quarter with strong performance in investment advisory, trading, and investment banking fees.”
Wells Fargo saw net income dip to $4.91 billion, or $1.33 per share, in the second quarter, from $4.94 billion, or $1.25 per share, during the same quarter a year ago. The bank set aside $1.24 billion as provision for credit losses, which included a modest decrease in the allowance for those losses. Revenue rose to $20.69 billion in the quarter.
The bank repurchased more than $12 billion of common stock during the first half of 2024 and it expects to increase the third-quarter dividend by 14%.
The stock is up more than 22% this year, outperforming the S&P 500.
Jamie Dimon, chairman and chief executive officer of JPMorgan Chase & Co., speaks during an Economic Club of New York (ECNY) event in New York, US, on Tuesday, April 23, 2024.
Victor J. Blue | Bloomberg | Getty Images
JPMorgan Chase is scheduled to report second-quarter earnings before the opening bell Friday.
Here’s what Wall Street expects:
Earnings: $4.19 a share, according to LSEG
Revenue: $49.9 billion, according to LSEG
Net interest income: $22.8 billion, according to StreetAccount
Trading Revenue: Fixed income of $4.82 billion; Equities of $2.77 billion, according to StreetAccount
Will cracks in the economy begin to reveal themselves in JPMorgan Chase results?
While JPMorgan has passed numerous stress tests lately — actual and hypothetical — it’s possible the bank’s consumers could begin showing more strain from higher interest rates.
Another open question is about succession at JPMorgan after CEO Jamie Dimon acknowledged in May that he now had less than five years remaining in his current role.
The unofficial start of the second-quarter earnings season kicks off Friday with results from banking giants including JPMorgan Chase . Analysts polled by LSEG expect the financial behemoth to report earnings of $4.18 per share on $42.16 billion in revenue. Along with the top- and bottom-line numbers, Wall Street is also keeping close watch on net interest income and guidance. “We are attracted to JPM’s competitive position and believe it has addressed a great deal of its litigation concerns,” said Barclays analyst Jason Goldberg. “We see the greatest sources of potential earnings upside being driven by higher loan growth and capital markets.” JPM YTD mountain Shares in 2024 Shares of JPMorgan have fared well in 2024, rising 22%. The bank’s CEO Jamie Dimon has also made headlines in recent months, warning in April that sticky inflation , wars and the Federal Reserve’s policy pose potential major threats ahead. Analysts will monitor JPMorgan’s 2024 outlook, particularly the trajectory for net interest income given the expectations for a higher-for-longer rate environment, noted Goldman Sachs analyst Richard Ramsden. Earlier this year, the company guided for $91 billion in net interest income, but another upgrade is not out of the question, according to Bank of America’s Ebrahim Poonawala. The firm holds a $226 price target on the stock, suggesting nearly 9% upside from Wednesday’s close. Barclays analyst Goldberg anticipates a slight decrease in net interest income in the second quarter due to a compression in net interest margin. Last year, the company posted $21.9 billion in net interest income for the period. Despite expectations for seasonally lower trading, he also expects strong investment banking activity and net interest income to drive ongoing positive momentum. “Looking out, we expect JPM to point toward stabilizing NII in 2024 with increased expenses on continued investments,” he said. “Still, further loan loss reserve build is likely as credit normalizes.” Wells Fargo analyst Mike Mayo expects realized Visa gains to provide upside to second-quarter earnings per share estimates, resulting in an $8 billion pretax gain that is partially offset by a $1 billion foundation contribution and building loan loss reserves. This could yield “excess capital to be used for buybacks, balance sheet growth, securities portfolio clean-up or other action,” he added, estimating a buyback of about $5 billion over the next couple of quarters. “JPMorgan is a highly diversified bank and a market leader in consumer banking, commercial lending, IB and wealth management,” said Redburn Atlantic’s John Heagerty. “JPMorgan is simply regarded as the highest quality bank in the United States.” He views the uncertain macroeconomic backdrop as a potential opportunity for the company to harness its strong balance sheet to acquire smaller banks.
There may be relief for the thousands of Americans whose savings have been locked in frozen fintech accounts for the past two months.
Banks involved in the mess caused by the collapse of fintech intermediary Synapse have made progress piecing together account information for stranded customers that could result in a release of funds in a matter of weeks, according to a person briefed on the matter.
Staff of Evolve Bank & Trust and Lineage Bank in particular have made headway after hiring a former Synapse engineer late last month to unlock data from the failed fintech middleman, said the person, who asked for anonymity to speak candidly about the process.
The development comes as regulators, including the Federal Reserve and the Federal Deposit Insurance Corp., pressure the banks involved to release funds after media and lawmakers have heightened awareness of the debacle.
Beginning in May, more than 100,000 customers of fintech apps like Yotta, Juno and Copper have been locked out of their accounts.
“We’re strongly encouraging Evolve to do whatever it can to help make money available to those depositors,” Federal Reserve Chair Jerome Powell told the Senate Banking Committee on Tuesday.
The sudden optimism of key players involved in the negotiations, including Evolve founder and Chairman Scot Lenoir, comes after weeks of apparent gridlock in a California bankruptcy court. Shoddy record-keeping and a dearth of funds to pay for a forensic analysis have made it difficult to piece together who is owed what, bankruptcy trustee Jelena McWilliams has said.
The episode revealed how small banks involved in the “banking-as-a-service” sector didn’t properly manage unregulated partners like Synapse, founded in 2014 by a first-time entrepreneur named Sankaet Pathak. Evolve and a string of peers have been reprimanded by bank regulators for shortcomings tied to their programs.
Evolve Bank initially planned to release $46 million it held from payment processing accounts to give fintech customers partial payments, according to the person with knowledge of the matter.
That plan changed in recent days when it became clear that something approximating a full reconciliation of customer accounts was possible, the person said.
But it remains unknown how the four main banks involved — Evolve, Lineage, AMG National Trust and American Bank — and what remains of Synapse will deal with a likely shortfall of funds, and that could hinder repayment efforts.
Up to $96 million owed to customers is missing, McWilliams has said.
The Synapse trustee didn’t respond to a request for comment. Neither did representatives for AMG, American Bank and Lineage. The FDIC declined to comment for this article.
On Wednesday Evolve filed a response to questioning from one of its regulators, FINRA, seeking to make it clear that while it holds some payment processing funds, deposits from the app Yotta migrated out of Evolve and to a network of banks in late October 2023.
“We believe there is still some confusion regarding who is in possession and control of customer funds,” Evolve told FINRA, according to documents obtained by CNBC.
The bank included an Oct. 27, 2023, email from Yotta CEO Adam Moelis to Lenoir where Moelis confirmed that funds had left Evolve as of that date.
“Synapse and Evolve are now saying contradictory things,” Moelis said this week in response to an inquiry from CNBC. “We don’t know who’s telling the truth.”
The S&P 500 hit a fresh new milestone on Wednesday, closing above 5,600 for the first time ever thanks to a rise in semiconductor stocks. The broad market index jumped 1.02%, and marked a seventh straight day of gains. The Nasdaq Composite, meanwhile, climbed 1.18% and also hit a new all-time high, while the Dow Jones Industrial Average joined the trend, adding 429.39 points, or 1.09%. Chip stocks led the day, with Taiwan Semiconductor rising 3.5% and Nvidia adding 2.7%, while Qualcomm and Broadcom rose about 0.8% and 0.7%, respectively. Follow live market updates.
Delta shares tumbled nearly 10% in premarket trading Thursday morning after the airline kicked off earnings season with a forecast that fell short of analysts’ estimates. Delta forecast record revenue for the third quarter, thanks to booming summer travel demand, but it expects to grow its flying capacity by 5% to 6% compared with last year, slower than the 8% it had expected in the second quarter. Airlines are seeing travel demand break records, but profits have lagged as the industry faces higher costs. Meanwhile, Delta also reported earnings in line with expectations and adjusted revenue of $15.41 billion, slightly less than the $15.45 billion expected, based on consensus estimates from LSEG.
An attendee films Samsung Electronics’ Galaxy Smart Ring during its unveiling ceremony in Seoul, South Korea, July 8, 2024.
Kim Hong-ji | Reuters
Samsung wants to put a ring on it. The tech giant launched the Galaxy Ring on Wednesday, a lightweight “smart ring” equipped with sensors designed for health monitoring 24 hours a day. The ring starts at $399.99. The announcement follows rival Apple‘s push into that space and comes as users hold onto smartphones for longer, inspiring device makers to look for add-on electronics products. Among other things, Samsung also unveiled its latest foldable smartphones, which are packed with AI features, at an event in Paris. The Samsung Galaxy Z Fold6 starts at $1,899.99 and opens like a book to have a bigger screen, while the Z Flip6 is a more traditional flip phone with a bendable screen and starts at $1,099.99.
Shares of software company Hubspot plunged 12% Wednesday after Bloomberg reported that Google parent Alphabet has shelved plans to buy the company. Alphabet expressed its interest in a deal earlier this year, “but the sides didn’t reach a point of detailed discussions about due diligence,” according to the report, which cited people with knowledge of the matter. Hubspot, which makes software that other companies use to automate marketing and reach prospective customers, has reported strong revenue growth and sales in recent quarters. An acquisition would have helped Google grow revenue from its business software and cloud infrastructure, but U.S. regulators have been pushing back on deals involving Big Tech companies.
Customers enter a Costco Wholesale Corp. warehouse store in Hawthorne, California, on June 12, 2024.
Patrick T. Fallon | Afp | Getty Images
Costco is going to cost more. The retailer said Wednesday that the price of a standard annual membership would rise by $5, to $65 from $60, in the U.S. and Canada starting Sept. 1. The higher tier of its membership, the “Executive Plan” would increase by $10, to $130 a year from $120. It’s the first time in seven years that Costco has raised its membership fees and has delayed its usual timeline of upping the price every five and a half years as consumers dealt with high inflation.
— CNBC’s Brian Evans, Leslie Josephs, Arjun Kharpal, Jordan Novet, Jennifer Elias and Melissa Repko contributed to this report.
— Follow broader market action like a pro on CNBC Pro.
Nearly half, or 46%, of Gen Zers between the ages of 18 and 27 rely on financial assistance from their family, according to a new report from Bank of America.
Even more — 52% — said they don’t make enough money to live the life they want and cite day-to-day expenses as a top barrier to their financial success.
“The high cost of living is certainly impacting Gen Z,” said Holly O’Neill, president of retail banking at Bank of America.
The financial institution polled more than 1,000 Gen Z adults in April and May.
Many consumers feel strained by higher prices — most notably for food, gas and housing. However, those just starting out face additional financial challenges.
Not only are their wages lower than their parents’ earnings when they were in their 20s and 30s, after adjusting for inflation, but they are also carrying larger student loan balances.
Even compared with millennials, Gen Zers are spending significantly more on necessities than young adults did a decade ago, other reports show.
They also have the debt to prove it. Roughly 15% of Gen Zers have maxed out their credit cards and are at risk of falling behind on payments, more so than any other generation, the New York Fed reported in May.
“What delinquency rates are showing is that there is increased stress among some segments of the population,” the New York Fed researchers said at the time.
In the years since the Covid pandemic, homeownership has been one of the greatest tools of wealth creation — and those who have been priced out of the housing market have disproportionately struggled to achieve the same level of financial security, according to Brett House, economics professor at Columbia Business School.
“That is a massive challenge for wealth accumulation among Gen Z,” he said.
Second only to food and groceries, housing is the expense most young adults today need help with, Bank of America also found.
“The high cost of housing definitely is a barrier for them,” O’Neill said. “We also found that the majority of Gen Z don’t pay for their own housing.”
Experts recommend spending no more than 30% of your take-home pay on shelter, but many young adults covering their own expenses are shelling out far more. Two-thirds of those Bank of America surveyed said they put more than 30% of their paycheck toward housing, and nearly a quarter spend upwards of 50%.
O’Neill said she advises her own Gen Z children to adhere to the 50-30-20 rule, which recommends putting 50% of a paycheck toward necessities, including food, housing and transportation, 30% to discretionary spending and the remaining 20% into savings.
But it’s not just Gen Z struggling. Most Americans believe they don’t earn enough to live the life they want these days, according to a separate survey, by Bankrate.
Just 25% of all adults in the survey said they are completely financially secure, down from 28% in 2023, the report said.
The survey respondents said they would need to earn $186,000 on average to live comfortably, Bankrate found. But to feel rich, they would need to earn a bit more than half a million a year, or $520,000, on average, the survey found.
Similarly, inflation’s recent runup and specific challenges related to housing costs and college affordability were significant obstacles to achieving financial security, according to Bankrate.
“Many Americans are stuck somewhere between continued sticker shock from elevated prices, a lack of income gains and a feeling that their hopes and dreams are out of touch with their financial capabilities,” said Mark Hamrick, Bankrate’s senior economic analyst.
Jim Cramer’s daily rapid fire looks at stocks in the news outside the CNBC Investing Club portfolio. Bank of America : Piper Sandler upgraded the stock to neutral from underweight (hold from sell) and raised its price target to $42 per share from $37. “It’s becoming the Buffett bank,” Jim Cramer said Tuesday ahead of next week’s earnings. “You’re seeing a recognition that their bond portfolio wasn’t really a danger after all.” Warren Buffett’s Berkshire Hathaway owns a huge stake in BofA. RH : Stifel started coverage of the company formerly named Restoration Hardware with a buy and a $315-per-share price target. CEO Gary Friedman sees an inflection point. “I don’t want to bet against Gary,” Cramer said. “He’s bought a huge amount of stock.” Intel : The struggling chipmaker was trying to rally for the fifth session in a row. Cramer said he’s not a fan of the stock but “every dog has its day.” Netflix : Cowen increased its price target on the stock ahead of earnings next week. “There’s nothing new driving that damn stock,” Cramer said. “It doesn’t matter, though.” Smurfit Westrock : Stifel started coverage of the paper-based packaging company with a buy rating and a $65.70-per-share price target. “There’s been tremendous consolidation in that industry. And yet, it’s still not really been able to get rolling,” Cramer said.
(This is CNBC Pro’s live coverage of Tuesday’s analyst calls and Wall Street chatter. Please refresh every 20-30 minutes to view the latest posts.) A streaming giant and a semiconductor maker were among the stocks being talked about by analysts on Tuesday. TD Cowen raised its price target on Netflix, calling for 13% upside for the stock. Meanwhile, KeyBanc hiked its Nvidia target to $180, implying upside of 40%. Check out the latest calls and chatter below. All times ET. 6:02 a.m.: Bank of America lifts credit rating for Devon Energy to overweight upon latest acquisition Bank of America views Devon Energy’s newest acquisition as a positive sign for its credit story. The bank upgraded the energy company’s credit rating to overweight rating from market weight upon Monday’s announcement that Devon Energy was planning to acquire Grayson Mill Energy’s Williston basin business in a $5 billion deal. “Fundamentally, we view the deal positively as it increases DVN’s scale / margin profile in the Williston basin while also providing diversification away from the Permian basin (where DVN’s production is concentrated),” wrote analyst Daniel Lungo. To finance the deal, the analyst expects the company to issue between $1 billion and $1.5 billion of long-term debt, and around $1.5 billion of term loans. He cited this enhanced liquidity as one catalyst for the stock, alongside a deleveraging outlook and improved fundamentals. “We think the most important impact from the transaction will be the potential new issuance of benchmark bonds which would enhance liquidity in DVN’s outstanding notes, helping bonds trade tighter (in our view), given the company’s current relatively off-the-run illiquid nature,” the analyst said. “We also think this announcement removes some risk that DVN could participate in a larger scale / more levering transaction, which we view positively for its credit story.” Shares of Devon Energy ended Monday’s session 1% lower and have overall added 2% this year. — Lisa Kailai Han 5:50 a.m.: Piper Sandler upgrades Bank of America to neutral Bank of America could get a boost on the back of its upcoming earnings results, according to Piper Sandler. Analyst R. Scott Siefers upgraded the bank to neutral from underweight. The analyst also raised his price target to $42 from $37, indicating a potential 3% upside from the stock’s Monday afternoon close. “We still see better opportunity in peers C and JPM, which are both OW rated. But with BAC’s NII likely to trough this Q and then begin a more powerful inflection upward, we no longer see compelling reason to single out the name for underperformance,” Siefers wrote. Shares of Bank of America have rallied 21% this year. JPMorgan Chase has added the same amount, while Citigroup stock is up 26% year to date. With net interest income flatlining around $13.9 billion in the second quarter of this year, Siefers predicts this measure could leap to between $14.5 billion and $14.6 billion by year-end. “BAC is certainly among the industry leaders here,” the analyst added. “Given the combination of its scale benefits and now-inflecting NII, we simply think it’s appropriate to ascribe a higher multiple to the shares than we have assumed previously.” Bank of America is due to report earnings July 16. — Lisa Kailai Han 5:44 a.m.: TD Cowen lifts Netflix price target ahead of second-quarter earnings announcement TD Cowen expects more gains ahead for Netflix . Analyst John Blackledge raised his price target for the stock to $775 from $725, while maintaining his buy rating on the stock. The new target points to 13% upside from Monday’s close. The increase comes ahead of Netflix’s second-quarter earnings report which is slated for next week. “We think Netflix’s broad catalog across multiple genres creates a durable advantage over time,” the analyst said, noting that TD Cowen’s second-quarter consumer survey showed Netflix as still taking to top spot for living room viewing. Besides the company’s second-quarter earnings and third-quarter outlook, Blackledge also cited paid sharing initiatives and Netflix’s ad-supported tier as near-term catalysts. “Any further pricing increases in one of the company’s major markets could also act as a catalyst,” he added. Netflix has rallied 41% this year. NFLX YTD mountain NFLX year to date — Lisa Kailai Han 5:44 a.m.: KeyBanc hikes Nvidia price target The good times for Nvidia are not over yet, according to KeyBanc. Analyst John Vinh raised his price target on the semiconductor stock to $180 from $130. The new forecast implies upside of 40% from Monday’s close. “Positive takeaways for NVDA include: 1) despite the impending launch of Blackwell in 2H24, we are not seeing any signs of a demand pause as demand for H100 remains robust, as we continue to see rush orders; and 2) the interest and demand in GB200 is greater than we initially had sized,” he said in a note to clients. Nvidia has been a market stalwart this year, with shares rallying 158.9% as enthusiasm around artificial intelligence shows no signs of easing. NVDA YTD mountain NVDA year to date KeyBanc isn’t the only firm getting more bullish on Nvidia. Wolfe Research and UBS recently increased their targets on Nvidia to $150 each. — Fred Imbert
Jim Cramer’s daily rapid fire looks at stocks in the news outside the CNBC Investing Club portfolio. Corning : Shares of the specialty materials company popped more than 10.5% on Monday after pre-announcing better-than-expected earnings. Management is now forecasting higher revenue and earnings-per-share on the high end of previous guidance for the second quarter. The company is set to report on July 30. Shares of Corning, which makes glass for Apple devices, reached their highest levels since February 2022. Tesla : Shares of the electric vehicle leader made a huge, 27% increase last week after the company delivered better-than-expected second-quarter production and deliveries. The stock jumped another nearly 3% on Monday. Cramer called the rally a short squeeze — meaning investors betting Tesla stock would go down were forced to cover as it ripped higher. JPMorgan : The bank caught a rare downgrade, with Wolfe Research taking its rating to peer perform from outperform (hold from buy) on valuation and exposure to lower net interest income given the threat of lower Federal Reserve interest rates approaching. Cramer said he’s concerned heading into JPMorgan’s second-quarter earnings Friday since there was a big sell-off following its Q1 release in April when the bank guided flat NII for 2024. “I don’t want the stock coming in hot,” he added. Domino’s Pizza : The pizza delivery chain was upgraded to an outperform rating from a neutral (buy from hold) at Baird. The analysts also raised their price target to $580 per share from $530. Baird sees the recent 7.4% pullback in Domino’s stock over the last eight sessions as an opportunity. They cited strong fundamentals, product pipeline, and management. Cramer thought this was a fair call since Domino’s CEO Russell Weiner is “crushing it.” ServiceNow : Shares of the enterprise software company took an over 4% dive on Monday after Guggenheim downgraded the stock to sell from neutral. The analysts said the company will get a boost from its generative artificial intelligence business in the second half of this year but won’t see that momentum into 2025. Cramer said the call was contrary to CEO Bill McDermott’s stance that generative AI offerings have been resonating with customers.
Wall Street finished higher for the holiday-shortened trading week, with tech stocks leading the way. The Dow Jones Industrial Average gained under 1% for the week. The S & P 500 and Nasdaq , which both closed at record highs Friday — rising nearly 2% and 3.5%, respectively, for the week. The first week of July continued the strength seen in June, the second quarter, and the first half of 2024. The S & P 500 technology sector was the big winner this past week, with Apple and Broadcom as our top Club stocks. Consumer discretionary and communication services, featuring Club name Meta Platforms and Alphabet , were also strong. Energy led to the downside this week, followed by health care and industrials. Looking back on the week, short as it was given the early close on Wednesday and Thursday off, we got some notable updates on the economy and heard from Club holding Constellation Brands . The Corona and Modelo brewer’s quarterly results Wednesday were decent , and the stock initially popped on the news. We told members that we were taking some profits in Constellation shortly before the open . However, the troubled wine and spirits business remained a problem that management must address in the coming quarters. Shares finished Wednesday down more than 3%, though they recovered much of that on Friday for a relatively flat week. Helping Friday’s largely higher session was drop in bond yields – precipitated by an uptick in June’s unemployment rate to 4.1% and only modestly higher than expected nonfarm payrolls additions of 206,000. Wage inflation was right in line with expectations. Taken as a whole, the government’s monthly jobs report card supported the case of the Federal Reserve to cut interest rates at its September meeting. While market odds favor a second cut in December, the Fed projected after its June meeting just one rate cut this year. This past week also brought updates on the manufacturing sector. On Monday, June’s ISM Manufacturing purchasing managers index came in weaker than expected and pointed to a faster-than-expected contraction, and on Wednesday, May’s factory order numbers showed a monthly decline versus expectations for a small increase. The ISM’s services PMI for June, out Wednesday, also disappointed, as it showed a contraction in the services sectors. Economists had been expecting to see an expansion. These readings were also green lights for the Fed to start cutting rates. We hope everyone had a good July 4 th and has a restful weekend. You’ll want to take advantage of the lull because believe it or not, earnings season is back. Three of the four big money center banks report this coming Friday, including Club name Wells Fargo . The government also delivers key data on consumer and wholesale inflation. Economic data : The June consumer price index (CPI) is out on Thursday morning, and the June producer price index (PPI) is out on Friday morning. Of the two, CPI carries more weight given that it more closely represents what consumers are paying for a basket of goods from one year, or month, to the next, which is the Fed’s main concern. However, PPI is important to track because it tells us what is happening at the cost input level for corporations. That speaks to margin dynamics – and therefore, it can inform us on both profitability and potential price actions companies may need to take in the future to protect profitability. Within the CPI data, be sure to watch the shelter component, which has been a huge thorn in the Fed’s side. Shelter, a barometer of what people pay for housing, has proven a very sticky source of inflation – a problem because, for most Americans, it represents a large and unavoidable cost. For headline CPI, economists are looking for a 3.1% annual increase, according to FactSet as of Friday. Core CPI, which excludes food and energy prices, is expected to increase 3.5% year over year. If realized, that would represent a slight deceleration at the headline level but a slight acceleration at the core level. As for PPI, economists are looking for a 2.3% annual increase at the headline level and a 2.5% year-over-year rise at the core level. Those numbers would be slightly higher than what we saw in May. Earnings season : Within the portfolio, net interest income (NII) guidance is going to be a key watch item when Wells Fargo reports its quarter this coming Friday. At an industry conference Tuesday, CFO Michael Santomassimo reiterated guidance for NII to be down 7% to 9% year over year. We still think this outlook could be conservative since the Fed’s higher-for-longer policy is generally a tailwind to net interest income. However, other factors like muted loan demand have prevented Wells Fargo from raising its outlook this year. Recognizing strong recent runs in shares of Wells Fargo and our other Club bank Morgan Stanley , we took some profits this past Friday. Morgan Stanley is set to deliver its earnings on Tuesday, July 16. We’re also interested to hear management’s thoughts on the intended pace of share repurchases in the second half of the year, now that the results of the stress test are in. Wells Fargo – and our other bank name Morgan Stanely – both passed, indicating they have strong capital positions with excess money to return to shareholders. Other higher-level watch items in the Wells Fargo report include commentary on the state of consumer savings, an indication of further buying power, and the real estate market, which has been something we’ve been monitoring as the world finds a new normal post-Covid. Monday, July 8 No major events Tuesday, July 9 No major events Wednesday, July 10 No major events Thursday, July 11 8:30 a.m. ET: Consumer price index 8:30 a.m. ET: Initial jobless claims Before the bell earnings: PepsiCo (PEP), Delta Air Lines (DAL), Conagra Brands (CAG) Friday, July 12 8:30 a.m. ET: Producer price index Before the bell: Wells Fargo (WFC), JPMorgan Chase (JPM), Citigroup (C) (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
U.S. flag is seen hanging on New York Stock Exchange building on Independence Day In New York, United States on America on July 4th, 2024.
Beata Zawrzel | Nurphoto | Getty Images
Wall Street finished higher for the holiday-shortened trading week, with tech stocks leading the way.
Let’s wait and see how this one goes. If I wrote this column a week ago, I would have said Tesla looked like an excellent bet to be down 30% by year end. But shares jumped more than 10% this week on its positive second-quarter news. Despite the high numbers for vehicle deliveries, it has been a volatile year for Tesla shareholders, with prices down 42% at one point. Our central thesis was that decreased profit margins and increased competition would lead to lower profit projections. That still feels solid to me.
Prediction: Crypto might be volatile, but could finish 2024 up 50%
This one hit the bullseye. After going on a tear in February, bitcoin was down almost 20% between mid-March and the beginning of May.
Overall, bitcoin only has to go up slightly over the next six months to meet that 50% return prediction. Of course, I believe the asset will be ultimately worth very little in the long term. Admittedly, I’m quite skeptical about crypto.
Prediction: U.S. election in November will be chaotic
We also predicted that this election year would be more chaotic than most, even though U.S. election years are historically quite positive for U.S. stock markets. We shied away from making too many specific predictions about how a Biden/Trump victory would impact stock-market prices, but said many market-watchers would be cheering for a split government.
Well, it’s certainly been chaotic in the headlines. As the rest of the world watches in disbelief, the 2024 U.S. election has so far proven to be the most volatile campaign in recent memory—and maybe of all time. At this point, betting markets think it’s a coin toss as to whether Biden even makes it as the Democratic Party nominee. Ordinarily, a political candidate running against a convicted felon would be an easy win. Then again, ordinarily, a candidate running against an incumbent whose own party isn’t sure he’s still right for the job would be an easy win as well.
Given all the variables, we don’t even know how to measure the degree of accuracy of this prediction. We did reluctantly predict a very slim Biden victory, and that doesn’t look like such a great prognostication now that Trump is a fairly strong betting favourite. However, our strong feeling was that a split government would lead to a robust end of the year for U.S. stocks. That scenario could still be very much in play. We’re going to wait to fully assess this one.
What’s left of 2024?
After a very accurate round of 2023 predictions, we were statistically unlikely to repeat the feat in 2024. While we may have called it wrong about U.S. tech, I think there’s a good chance we’re going to get the big picture stuff right—by the end of the year. Despite a ton of negative headlines and general “bad vibes” over the last six months, one of my big takeaways is that the world’s stock markets (and especially America’s) should continue to reward patient Canadian investors.
Kyle Prevost is a financial educator, author and speaker. He is also the creator of 4 Steps to a Worry-Free Retirement, Canada’s DIY retirement planning course.
We’re selling 50 shares of Morgan Stanley at roughly $100.04 each and 110 shares of Wells Fargo at roughly $60.65. Following Friday’s trades, Jim Cramer’s Charitable Trust will own 1,100 shares of MS, decreasing its 3.3% weighting to from 3.45% and 2,000 shares of WFC, decreasing its weighting to 3.64% from 3.84%. We’re making two small trims and locking in solid gains in our two bank stocks following their strong moves toward their 52-week highs over the past week. Morgan Stanley has rallied more than 4% and Wells Fargo has gained more than 5% since last Thursday’s presidential debate on the increasing probability of a Donald Trump victory. The bank stocks are viewed as beneficiaries of a Trump presidency due to less regulation and a more accommodative stance on mergers and acquisitions, which would benefit their investment banking operations. The election may be months away, but the market is dusting off the playbook that immediately worked in late 2016. Jim Cramer thinks this recent strength is a good opportunity to take profits in a group prone to pullbacks. These sales will also replenish our cash position which was slightly depleted from several buys this past week. “To me, the question is: why not sell some MS and some WFC for more firepower? The positions were built and forged in tougher times. I think they should be trimmed” Cramer said. WFC MS YTD mountain Wells Fargo vs. Morgan Stanley YTD Bank earnings are also on the horizon, with Wells Fargo, JPMorgan , and Citigroup set to report next Friday. Morgan Stanley, Bank of Americ a, and Goldman Sachs report the week after next. These stocks are historically fickle around earnings, providing a reason to take a little off the table with these stocks near highs. “We have bank earnings beginning next week. These stocks do not react well when their stocks are high going into earnings. We need to keep them on but make them slightly smaller. Very simple” Cramer added. From these two sales, we’ll realize a gain of 12% on Morgan Stanley stock bought in July 2021 and a big gain of 77% on Wells stock purchased in January 2021. (Jim Cramer’s Charitable Trust is long MS, WFC. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
The rout in the real estate market has presented an opportunity for long-term investors, according to UBS. Real estate is the only one of 11 main groups in the S & P 500 that has fallen in 2024, sliding 4.7%. Significant uncertainty remains in the commercial real estate, or CRE, market, including the path of interest rates and questions about refinancing $2 trillion in debt maturing between 2024 and 2026, UBS analyst Jonathan Woloshin wrote in a note last week. However, capital remains available and the diminishing supply of new retail, multifamily and industrial real estate points to stronger operating fundamentals in 2025 through 2030, he said. There is also money sitting on the sidelines in the private equity market and about $33.5 billion in new CRE funds have been announced, he added. .SPLRCR YTD mountain S & P 500 Real Estate Sector year to date Real estate investment trusts , or REITs, also pay attractive dividends, with an average yield of 4.2%, according to UBS. “Investors need to remember that no one rings a bell at the bottom,” Woloshin wrote. “Although headlines are likely to remain negative and more challenges will persist in CRE, we believe patient investors with liquidity and a multi-year time horizon have a plethora of attractive risk-adjusted reward opportunities available in the CRE and REIT market.” He strongly recommends focusing on quality — such as management, balance sheet, properties, geographies and dividend-to-free cash flow coverage — instead of reaching for yield. Here are two of the REITS on his list: Shares of Prologis have struggled this year, down about 15%. However, the REIT is the world’s largest owner of industrial properties, such as warehouses — and the industrial sector remains strong, Woloshin said. “PLD has a four-prong operating model consisting of owned and operated real estate, development, profit potential for its Essentials Business and strategic capital management that provides multiple avenues of value-creation potential,” he said. Prologis also pays a 3.4% dividend yield. Alexandria Real Estate Equities yields 4.4% and is down more than 7% year to date. The company owns, operates and develops large campuses for life science companies. Woloshin likes Alexandria Real Estate Equities’ strong balance sheet and its limited near-term debt, as well as its well-covered dividend and broad access to capital. “ARE has a demonstrated history of developing assets that are strongly pre-leased and has a well-diversified, strong credit tenant base,” he said.
Natasha Craft, a 25-year-old FedEx driver from Mishawaka, Indiana. She has been locked out of her Yotta banking account since May 11.
Courtesy: Natasha Craft
When Natasha Craft first got a Yotta banking account in 2021, she loved using it so much she told her friends to sign up.
The app made saving money fun and easy, and Craft, a now 25-year-old FedEx driver from Mishawaka, Indiana, was busy getting her financial life in order and planning a wedding. Craft had her wages deposited directly into a Yotta account and used the startup’s debit card to pay for all her expenses.
The app — which gamifies personal finance with weekly sweepstakes and other flashy features — even occasionally covered some of her transactions.
“There were times I would go buy something and get that purchase for free,” Craft told CNBC.
Today, her entire life savings — $7,006 — is locked up in a complicated dispute playing out in bankruptcy court, online forums like Reddit and regulatory channels. And Yotta, an array of other startups and their banks have been caught in a moment of reckoning for the fintech industry.
For customers, fintech promised the best of both worlds: The innovation, ease of use and fun of the newest apps combined with the safety of government-backed accounts held at real banks.
The startups prominently displayed protections afforded by the Federal Deposit Insurance Corp., lending credibility to their novel offerings. After all, since its 1934 inception, no depositor “has ever lost a penny of FDIC-insured deposits,” according to the agency’s website.
But the widening fallout over the collapse of a fintech middleman called Synapse has revealed that promise of safety as a mirage.
Starting May 11, more than 100,000 Americans with $265 million in deposits were locked out of their accounts. Roughly 85,000 of those customers were at Yotta alone, according to the startup’s co-founder, Adam Moelis.
CNBC reached out to fintech customers whose lives have been upended by the Synapse debacle.
They come from all walks and stages of life, from Craft, the Indiana FedEx driver; to the owner of a chain of preschools in Oakland, California; a talent analyst for Disney living in New York City; and a computer engineer in Santa Barbara, California. A high school teacher in Maryland. A parent in Bristol, Connecticut, who opened an account for his daughter. A social worker in Seattle saving up for dental work after Adderall abuse ruined her teeth.
Since Yotta, like most popular fintech apps, wasn’t itself a bank, it relied on partner institutions including Tennessee-based Evolve Bank & Trust to offer checking accounts and debit cards. In between Yotta and Evolve was a crucial middleman, Synapse, keeping track of balances and monitoring fraud.
Founded in 2014 by a first-time entrepreneur named Sankaet Pathak, Synapse was a player in the “banking-as-a-service” segment alongside companies like Unit and Synctera. Synapse helped customer-facing startups like Yotta quickly access the rails of the regulated banking industry.
It had contracts with 100 fintech companies and 10 million end users, according to an April court filing.
Until recently, the BaaS model was a growth engine that seemed to benefit everybody. Instead of spending years and millions of dollars trying to acquire or become banks, startups got quick access to essential services they needed to offer. The small banks that catered to them got a source of deposits in a time dominated by giants like JPMorgan Chase.
But in May, Synapse, in the throes of bankruptcy, turned off a critical system that Yotta’s bank used to process transactions. In doing so, it threw thousands of Americans into financial limbo, and a growing segment of the fintech industry into turmoil.
“There is a reckoning underway that involves questions about the banking-as-a-service model,” said Michele Alt, a former lawyer for the Office of the Comptroller of the Currency and a current partner at consulting firm Klaros Group. She believes the Synapse failure will prove to be an “aberration,” she added.
The most popular finance apps in the country, including Block’s Cash App, PayPal and Chime, partner with banks instead of owning them. They account for 60% of all new fintech account openings, according to data provider Curinos. Block and PayPal are publicly traded; Chime is expected to launch an IPO next year.
Block, PayPal and Chime didn’t provide comment for this article.
While industry experts say those firms have far more robust ledgering and daily reconciliation abilities than Synapse, they may still be riskier than direct bank relationships, especially for those relying on them as a primary account.
“If it’s your spending money, you need to be dealing directly with a bank,” Scott Sanborn, CEO of LendingClub, told CNBC. “Otherwise, how do you, as a consumer, know if the conditions are met to get FDIC coverage?”
Sanborn knows both sides of the fintech divide: LendingClub started as a fintech lender that partnered with banks until it bought Boston-based Radius in early 2020 for $185 million, eventually becoming a fully regulated bank.
Scott Sanborn, LendingClub CEO
Getty Images
Sanborn said acquiring Radius Bank opened his eyes to the risks of the “banking-as-a-service” space. Regulators focus not on Synapse and other middlemen, but on the banks they partner with, expecting them to monitor risks and prevent fraud and money laundering, he said.
But many of the tiny banks running BaaS businesses like Radius simply don’t have the personnel or resources to do the job properly, Sanborn said. He shuttered most of the lender’s fintech business as soon as he could, he says.
“We are one of those people who said, ‘Something bad is going to happen,’” Sanborn said.
A spokeswoman for the Financial Technology Association, a Washington, D.C.-based trade group representing large players including Block, PayPal and Chime, said in a statement that it is “inaccurate to claim that banks are the only trusted actors in financial services.”
“Consumers and small businesses trust fintech companies to better meet their needs and provide more accessible, affordable, and secure services than incumbent providers,” the spokeswoman said.
“Established fintech companies are well-regulated and work with partner banks to build strong compliance programs that protect consumer funds,” she said. Furthermore, regulators ought to take a “risk-based approach” to supervising fintech-bank partnerships, she added.
The implications of the Synapse disaster may be far-reaching. Regulators have already been moving to punish the banks that provide services to fintechs, and that will undoubtedly continue. Evolve itself was reprimanded by the Federal Reserve last month for failing to properly manage its fintech partnerships.
In a post-Synapse update, the FDIC made it clear that the failure of nonbanks won’t trigger FDIC insurance, and that even when fintechs partner with banks, customers may not have their deposits covered.
The FDIC’s exact language about whether fintech customers are eligible for coverage: “The short answer is: it depends.”
While their circumstances all differed vastly, each of the customers CNBC spoke to for this story had one thing in common: They thought the FDIC backing of Evolve meant that their funds were safe.
“For us, it just felt like they were a bank,” the Oakland preschool owner said of her fintech provider, a tuition processor called Curacubby. “You’d tell them what to bill, they bill it. They’d communicate with parents, and we get the money.”
The 62-year-old business owner, who asked CNBC to withhold her name because she didn’t want to alarm employees and parents of her schools, said she’s taken out loans and tapped credit lines after $236,287 in tuition was frozen in May.
Now, the prospect of selling her business and retiring in a few years seems much further out.
“I’m assuming I probably won’t see that money,” she said, “And if I do, how long is it going to take?”
When Rick Davies, a 46-year-old lead engineer for a men’s clothing company that owns online brands including Taylor Stitch, signed up for an account with crypto app Juno, he says he “distinctly remembers” being comforted by seeing the FDIC logo of Evolve.
“It was front and center on their website,” Davies said. “They made it clear that it was Evolve doing the banking, which I knew as a fintech provider. The whole package seemed legit to me.”
He’s now had roughly $10,000 frozen for weeks, and says he’s become enraged that the FDIC hasn’t helped customers yet.
For Davies, the situation is even more baffling after regulators swiftly took action to seize Silicon Valley Bank last year, protecting uninsured depositors including tech investors and wealthy families in the process. His employer banked with SVB, which collapsed after clients withdrew deposits en masse, so he saw how fast action by regulators can head off distress.
“The dichotomy between the FDIC stepping in extremely quickly for San Francisco-based tech companies and their impotence in the face of this similar, more consumer-oriented situation is infuriating,” Davies said.
The key difference with SVB is that none of the banks linked with Synapse have failed, and because of that, the regulator hasn’t moved to help impacted users.
Consumers can be forgiven for not understanding the nuance of FDIC protection, said Alt, the former OCC lawyer.
“What consumers understood was, ‘This is as safe as money in the bank,’” Alt said. “But the FDIC insurance isn’t a pot of money to generally make people whole, it is there to make depositors of a failed bank whole.”
For the customers involved in the Synapse mess, the worst-case scenario is playing out.
While some customers have had funds released in recent weeks, most are still waiting. Those later in line may never see a full payout: There is a shortfall of up to $96 million in funds that are owed to customers, according to the court-appointed bankruptcy trustee.
That’s because of Synapse’s shoddy ledgers and its system of pooling users’ money across a network of banks in ways that make it difficult to reconstruct who is owed what, according to court filings.
The situation is so tangled that Jelena McWilliams, a former FDIC chairman now acting as trustee over the Synapse bankruptcy, has said that finding all the customer money may be impossible.
Despite weeks of work, there appears to be little progress toward fixing the hardest part of the Synapse mess: Users whose funds were pooled in “for benefit of,” or FBO, accounts. The technique has been used by brokerages for decades to give wealth management customers FDIC coverage on their cash, but its use in fintech is more novel.
“If it’s in an FBO account, you don’t even know who the end customer is, you just have this giant account,” said LendingClub’s Sanborn. “You’re trusting the fintech to do the work.”
While McWilliams has floated a partial payment to end users weeks ago, an idea that has support from Yotta co-founder Moelis and others, that hasn’t happened yet. Getting consensus from the banks has proven difficult, and the bankruptcy judge has openly mused about which regulator or body of government can force them to act.
The case is “uncharted territory,” Judge Martin Barash said, and because depositors’ funds aren’t the property of the Synapse estate, Barash said it wasn’t clear what his court could do.
Evolve has said in filings that it has “great pause” about making any payments until a full reconciliation happens. It has further said that Synapse ledgers show that nearly all of the deposits held for Yotta were missing, while Synapse has said that Evolve holds the funds.
“I don’t know who’s right or who’s wrong,” Moelis told CNBC. “We know how much money came into the system, and we are certain that that’s the correct number. The money doesn’t just disappear; it has to be somewhere.”
In the meantime, the former Synapse CEO and Evolve have had an eventful few weeks.
Pathak, who dialed into early bankruptcy hearings while in Santorini, Greece, has since been attempting to raise funds for a new robotics startup, using marketing materials with misleading claims about its ties with automaker General Motors.
And only days after being censured by the Federal Reserve about its management of technology partners, Evolve was attacked by Russian hackers who posted user data from an array of fintech firms, including Social Security numbers, to a dark web forum for criminals.
For customers, it’s mostly been a waiting game.
Craft, the Indiana FexEx driver, said she had to borrow money from her mother and grandmother for expenses. She worries about how she’ll pay for catering at her upcoming wedding.
“We were led to believe that our money was FDIC-insured at Yotta, as it was plastered all over the website,” Craft said. “Finding out that what FDIC really means, that was the biggest punch to the gut.”
She now has an account at Chase, the largest and most profitable American bank in history.
Investors who are growing concerned about the U.S. presidential election could turn to a rapidly expanding part of the ETF market to ease their worries, and protect their money, against potential swings in stocks. Guarding against event-driven volatility is one of the use-cases of a breed of options-based funds that have gained popularity with investors since the Covid pandemic. These ETFs, often called “buffer funds,” use options to give investors downside protection in exchange for giving up potential upside. JPMorgan said in a June report on the ETF industry that this category now has about $40 billion in assets under management. The funds come with different time horizons, and new funds are launching or resetting every month, so there are several options for investors to buy now and protect themselves through the November election. “If you watched the debate [Thursday] night like everybody else and you’re like oh my goodness what is our country doing, and you’re not so sure how you feel about the election, you can buy the six-month,” said Bruce Bond, CEO of Innovator Capital Management, one of the firms that pioneered this type of ETF. How they work These downside protection ETFs are created using flex options to combine different derivatives contracts on a market index, like the S & P 500. One way to structure these funds is to essentially buy a deep in-the-money call option, allowing the trade to capture the upside of the market, and then create a so-called put spread, which creates the downside protection layer. A call option gives the holder the right to buy the underlying asset at a certain strike price, while a put gives the holder the right to sell. A third step is to sell another call option that is above the current market level, which helps fund the rest of the trade and creates the upside cap. All the funds have reset dates, typically ranging from one quarter to two years. The funds are designed to be owned for the full period in order to get the stated outcome, and selling the fund before the reset date can result in not capturing the full upside of a rally, due to the nature of options pricing. “They can use structured protection funds, and that will essentially allow you to reduce volatility through an election cycle without sacrificing all of your upside equity opportunity,” said Matt Kaufman, head of ETFs at Calamos Investments, which is one of the firms launching new funds Monday. Many of the ETFs offer something in the range of 10% to 30% downside protection and are often called buffer funds. Other products that offer 100% downside protection — in exchange for smaller upside — are sometimes marketed as “principal protection funds.” Jim Saulnier, a CFP and founder of Jim Saulnier & Associates in Fort Collins, Colorado, said that his clients use both the buffer funds and the 100% downside protection funds. His firm has about $140 million in assets and mostly works with retirees. Saulnier said that his clients put money that they plan to spend several years down the line into these funds. Having the buffer helps keep clients from making rash moves when the market slips, and works to diversify the portfolio in a way that fixed income has not in recent years, he said. “A lot of our clients are very surprised at the drop in fixed income, and they are concerned that what if inflation comes back and the Fed has to continue raising rates? They don’t want to deal with an investment that was intended to offer some non-correlation to equities going back into almost full correlation,” Saulnier said. As the category has gained traction, the number of firms launching these funds has expanded, along with the different variations, giving investors more options to choose from. Several funds launch on Monday, including products from iShares, Calamos and Innovator, tracking different indexes and time frames. “The product category has really exploded,” Bond said. Volatility outlook Market volatility has been muted over the past year, though the futures market for the Cboe Volatility Index does show that traders are expecting movement to pick up at least a little bit around the election. “When there’s a known event like that, there’s always going to be a little bit of a premium for protection out there,” said Matt Thompson, a portfolio manager at Little Harbor Advisors. Little Harbor specializes in building volatility strategies for clients, though Thompson said it is a little too early to start hedging their portfolios. Of course, another way investors could protect their assets through the election is through short-term government debt or certificates of deposits from banks, where an annualized return of more than 5% is still available. However, ETF issuers point out that going the debt route can result in investors paying ordinary income taxes next year, as opposed to keeping the capital gain return in an ETF until they decide to sell. “If you compound that, that’s a massive, massive difference by compounding growth inside of the tax-deferred ETF wrapper,” Kaufman said.
Every weekday the CNBC Investing Club with Jim Cramer holds a “Morning Meeting” livestream at 10:20 a.m. ET. Here’s a recap of Monday’s key moments. U.S. stocks kicked off the first trading session of the second half of 2024 with slight gains. Meta Platforms was the portfolio’s biggest laggard on Monday, down 1.5% after the opening bell. Raymond James raised Meta’s price target to $600 apiece from $550, implying a more than 19% upside from Friday’s close. The analysts said the Facebook and Instagram parent’s capital expenditures could amount to an estimated $50 billion in 2025 in order to support its artificial intelligence efforts. Investors seem to be weighing if these massive bets on the nascent but fast-growing tech are worth it. The Club says they will be, given the monetization opportunities AI brings to Meta’s advertising business. Shares of Morgan Stanley and Wells Fargo climbed 1% and 0.7%, respectively, after the banks announced a boost to their dividend payouts Friday evening. The news follows the Federal Reserve’s annual stress tests results last week, which both our financial names passed with ease. Morgan Stanley raised its dividend by 8.8% and authorized a $20 billion repurchase plan, while Wells boosted its dividend by 14%, but did not give firm details on its buyback plans. Barclays laid out a case for Abbott Labs stock to bounce back after the company’s latest trial over allegations that its formula may cause necrotizing enterocolitis in infants, which begins July 8. Abbott has lost nearly $30 billion in market cap since peer Reckitt Benckiser’s $60 million verdict in mid-March over similar matters. But the Wall Street analysts said that if the outcome is substantially below Reckitt’s figure, investors could come back to the stock. We’re not making light of the terrible situation, but are pointing out that Abbott’s fundamentals are still solid. Just look at the medical device maker’s beat and raise last quarter. (Jim Cramer’s Charitable Trust is long META, WFC, MS, ABT. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
(L-R) Brian Moynihan, Chairman and CEO of Bank of America; Jamie Dimon, Chairman and CEO of JPMorgan Chase; and Jane Fraser, CEO of Citigroup; testify during a Senate Banking Committee hearing at the Hart Senate Office Building in Washington, D.C., on Dec. 6, 2023.
JPMorgan, the biggest U.S. bank by assets, said it was raising its quarterly dividend 8.7% to $1.25 per share and that it authorized a new $30 billion share repurchase program.
Morgan Stanley, a dominant player in wealth management, said it was boosting its dividend 8.8% to 92.5 cents per share and authorized a $20 billion repurchase plan.
Citigroup said it was raising its dividend 5.7% to 56 cents per share and that it would “continue to assess share repurchases” on a quarterly basis.
Bank of America said it was increasing its dividend 8% to 26 cents per share. Its release made no mention of share repurchases.
The big banks announced their plans to boost capital return to shareholders after passing the annual stress test administered by the Federal Reserve this week. While all 31 banks in this year’s exam showed regulators they could withstand a severe hypothetical recession, JPMorgan said Wednesday that it could have higher losses than the Fed initially found.
Still, that would not affect its capital-return plan, the New York-based bank said Friday.
“The strength of our company allows us to continually invest in building our businesses for the future, pay a sustainable dividend, and return any remaining excess capital to our shareholders as we see fit,” JPMorgan CEO Jamie Dimon said in his company’s release.
JPMorgan’s dividend increase was its second this year, Dimon noted.
If the summer heat doesn’t get you, inflation will
Canadians hoping for interest rate relief will likely have to wait a bit longer. The Consumer Price Index (CPI) reading for May came in at 2.9%, according to Statistics Canada.
The money markets predict a 45% chance that the Bank of Canada (BoC) will cut rates at its July 24 meeting. Lowering interest rates after a month of renewed inflation worries would carry a large credibility risk for the BoC, after it raised rates so quickly to restore faith that it would tame inflation over the long term.
CPI May 2024 highlights
Here are some notable takeaways from the CPI report:
May’s overall 2.9% CPI increase was 0.2% higher than April’s 2.7% CPI increase.
Renters in Canada continue to get slammed, as the year-over-year increase in rent was 8.9%.
Mortgage interest costs also massively grew, by 23.3%.
Core CPI (stripping out volatile items such as gas and groceries) was 2.85%.
The cost of travel also jumped, with airfare up 4.5% and tours up 6.9%.
Gasoline costs were up 5.6%.
In slightly better news, grocery prices were only up 1.5% year-over-year, but they’re up 22.5% since May 2020.
Cell phone services continue to be a bright spot for deflation, as they are down 19.4% since May 2023.
We’re sure the BoC was hoping for inflation to be closer to 2.5%, which would allow it to justify cutting interest rates and point to a stronger downward trend for inflation. Continuing to balance long-term growth and full employment versus controlled inflation isn’t going to get easier anytime soon for BoC governor Tiff Macklem and his team.
It was a tale of two extremes in U.S. earnings this week as FedEx shareholders became quite happy, while Nike investors were down in the dumps.
U.S. earnings highlights
This is what came out of the earnings reports this week. Both Nike and FedEx report in U.S. dollars.
Nike (NKE/NYSE): Earnings per share of $1.01 (versus $0.83 predicted). Revenue of $12.61 billion (versus $12.84 predicted).
FedEx (FDX/NYSE): Earnings per share of $5.41 (versus $5.35 predicted). Revenue of $22.11 billion (versus $22.08 billion predicted).
Nike finance chief Matthew Friend found himself in an odd position on his earnings call with analysts on Thursday. On one hand, Nike’s effort to reduce costs by shedding 1,500 jobs is paying off, and earnings per share came in substantially higher than experts predicted. On the other hand, declining sales in China and “increased macro uncertainty” were cited as reasons for a predicted sales drop of 10% in the next quarter. Investors chose to see the half-empty part of the glass, as shares plunged more than 12% in after-hours trading.
Friend attempted to put the downward forecast in perspective: “While our outlook for the near term has softened, we remain confident in Nike’s competitive position in China in the long term.” Nike highlighted running, women’s apparel and the Jordan brand as growth areas to watch going forward.
FedEx had a much better day, as shares were up more than 15% after it announced earnings on Tuesday. Future earnings projections were up on the news of increased cost-cutting efforts that will save the company about $4 billion over the next two years. FedEx announced possible increased profit margins as a result of consolidating its air and ground services.
Cash-strapped consumers pinch Couche-Tard
Canada’s 13th-largest company, the gas and convenience store empire known as Alimentation Couche-Tard, announced its earnings on Tuesday.
It typically costs $54,616 to sell a house in 2024, according to a June 17 report from Clever Real Estate. Almost half of surveyed home sellers, or 42%, said their costs to sell were higher than expected, the report found.
“When people think about selling their home, they’re thinking about how much money they’re going to make from their home sale, and not how much they’re going to spend,” said Jaime Dunaway-Seale, data writer at Clever Real Estate.
“That cost does end up being very high and then they’re caught off guard and disappointed because that’s going to take a cut out of their profit,” Dunaway-Seale said.
In May, Clever Real Estate polled 1,014 Americans who sold a home between 2022 and 2024 about their attitudes related to the home-selling process. It also conducted an analysis of seller costs based on median real estate prices in May.
About 39% of the total cost — $21,603 — is spent on real estate agent commissions, according to the report.
However, as a landmark case involving real estate agent commission fees will soon take effect, sellers will no longer be required to pick up the entire tab. If a seller decides not to pay the buyer’s real estate agent’s commission, it could “drop their cost by about $10,000,” Dunaway-Seale said.
Other typical expenses include doing some home repairs both ahead of the listing and in response to inspections, which Clever Real Estate estimates to cost $10,000; closing costs ($8,000); buyer concessions, or expenses the seller agrees to pay for the buyer to reduce upfront purchase costs, ($7,200); moving costs ($3,250); marketing and advertising costs ($2,300); and staging costs ($2,263).
But home sellers should focus on “maximizing the efficiency of the transaction,” and “not just trying to save on costs,” said Mark Hamrick, senior analyst at Bankrate.
“Ultimately, [with] many of these fees, there’s no harm in trying to negotiate, and that includes real estate commissions,” Hamrick said.
Cost-constrained homebuyers in today’s housing market do not want to inherit homes in need of renovations, according to the Clever Real Estate report.
“There are plenty of costs involved,” said certified financial planner Kashif A. Ahmed, founder and president of American Private Wealth in Bedford, Massachusetts. “You might have to do some renovations to sell it.”
If a buyer makes it as far as the home inspectionprocess and sees issues in the house that were not noticeable during the initial walkthrough nor disclosed, they may have room to ask the seller to do the necessary repairs, Daryl Fairweather, chief economist at Redfin, recently told CNBC.
That is especially true in housing markets where listed homes are lingering on the market for longer because it gives homebuyers “bargaining power,” according to Orphe Divounguy, a senior economist at Zillow.
Sellers often incur pre- and post-listing repairs, improvements and renovations that can cost around $10,000, according to Clever Real Estate.
“There may be a situation where a buyer might say, ‘Well, I want you to fix this before I buy it,’ and then you’re like, ‘Well, in the interest of getting rid of this place … I’ll spend the extra money,’” Ahmed said.
But the highest expenses an owner will face when selling a home are the real estate agent commission fees, Ahmed said.
A landmark case is poised to change the way homes are bought and sold in the U.S.
The National Association of Realtors in March agreed to a $418 million settlement in an antitrust lawsuit in which a federal jury found the organization and other real estate brokerages had conspired to artificially inflate agent commissions on the sale and purchase of real estate.
“We went ahead and included it [in the Clever Real Estate analysis] now because, as of right now, the rule change has not yet gone into effect,” said Dunaway-Seale.
A finalized NAR settlement takes effect in August, and there is a “much more defined notion that sellers are not responsible” for a buyer’s real estate agent commissions, said real estate attorney Claudia Cobreiro, the founder of Cobreiro Law in Coral Gables, Florida.
Commission rates have also been removed from the multiple listing system, or MLS, in some areas like Miami, she noted.
The new mandatory MLS policy changes will take effect on August 17, 2024, according to the NAR.
However, “that is the policy side of it,” she said. “The practical side of it is that we are still seeing the notion that Realtors are needed,” and most buyers might not have an extra $10,000 on top of closing costs and the down payment required for the purchase, Cobreiro said.
Dunaway-Seale agreed: “Sellers might not be obligated to pay the buyer’s agent commission, but a lot of them still might as just another incentive to bring buyers in.”
A seller has to pay closing costs; everything else depends on the home seller’s priority, or how quickly they need to sell off the property, said Dunaway-Seale.
Here are some ways to cut or reduce expenses associated with selling a house:
1. Sell without a real estate agent: Homeowners could try to sell the house themselves and potentially drop real estate services altogether, said Dunaway-Seale.
“But they’re not going to sell for as much profit,” she said.
Among sellers who did not hire an agent, 59% did so to save money, Clever Real Estate found. But sellers who did work with an agent sold their house for about $34,000 more than those who did not, according to the report.
Keep in mind that going through the transaction without a real estate agent can pose a risk.
Signing the contract is the least of it. There are so many things that happen throughout the transaction that really require the expertise and the navigation by someone who understands the process, Cobreiro previously told CNBC.
“You’re talking about one of the most expensive and consequential transactions of a lifetime,” said Hamrick. “These fees can on the face of it look a bit daunting, but the good news is most people are not going into this where they’re going to essentially lose money on the transaction.”
2. Reduce concessions, staging and marketing costs: “If sellers don’t really care about selling their home quickly, they could possibly offer fewer concessions,” Dunaway-Seale said. Concessions are expenses the seller agrees to pay for to reduce a buyer’s upfront costs.
Lowering the budget for staging and marketing costs can also save on expenses because such tools help draw buyers in, she said.
JPMorgan Chase CEO and Chairman Jamie Dimon gestures as he speaks during the U.S. Senate Banking, Housing and Urban Affairs Committee oversight hearing on Wall Street firms, on Capitol Hill in Washington, D.C.
Evelyn Hockstein | Reuters
JPMorgan Chase said late Wednesday that the Federal Reserve overestimated a key measure of income in the giant bank’s recent stress test, and that its losses under the exam should actually be higher than what the regulator found.
The bank took the unusual step of issuing a press release minutes before midnight ET to disclose its response to the Fed’s findings.
JPMorgan said that the Fed’s projections for a measure called “other comprehensive income” — which represents revenues, expenses and losses that are excluded from net income — “appears to be too large.”
Under the Fed’s table of projected revenue, income and losses though 2026, JPMorgan was assigned $13 billion in OCI, more than any of the 31 lenders in this year’s test. It also estimated that the bank would face roughly $107 billion in loan, investment and trading losses in that scenario.
“Should the Firm’s analysis be correct, the resulting stress losses would be modestly higher than those disclosed by the Federal Reserve,” the bank said.
The error means that JPMorgan might require more time to finalize its share repurchase plan, according to a person with knowledge of the situation. Banks were expected to begin disclosing those plans on Friday after the market closes.
The news is a wrinkle to the Federal Reserve’s announcement yesterday that all 31 of the banks in the annual exercise cleared the hurdle of being able to withstand a severe hypothetical recession, while maintaining adequate capital levels and the ability to lend to consumers and corporations.
Last year, Bank of America and Citigroup made similar disclosures, saying that estimates of their own future income differed from the Fed’s results.
Banks have complained that aspects of the annual exam are opaque and that it’s difficult to understand how the Fed produces some of its results.
