It’s time to move away interest rate sensitive brokers such as Charles Schwab , according to Bank of America. Analyst Craig Siegenthaler double downgraded shares to underperform from buy, and lowered his price target, saying client cash sorting will continue to remain elevated in the first half of this year. Client cash sorting refers to clients moving cash out of lower-yielding bank deposits into higher-yielding alternatives such as money market funds. “This change is driven by our view that (1) client cash sorting will continue at an elevated pace in 1H23 (pressuring liquidity, interest earning assets & bank deposit account [BDA] levels) and (2) the Fed will end its interest rate hiking cycle by this summer, removing a powerful nearterm profit driver (while securities portfolio reinvestment opportunity remains),” Siegenthaler wrote Thursday. Charles Schwab outperformed last year, gaining 0.1%, and is “arguably the biggest beneficiary of higher interest rates across diversified financials,” the analyst said. Regardless, the analyst expects Charles Schwab’s revenue and profit growth will decelerate this year due to a constricting balance sheet. The analyst noted that client cash sorting jumped in the fourth quarter of 2022, is expected to remain elevated in the first half of 2023, before decelerating and concluding by the end of this year. The analyst’s $75 price objective, cut from $92 previously, implies shares can drop another roughly 7% from Wednesday’s closing price. Shares declined 2% in the premarket Thursday. —CNBC’s Michael Bloom contributed to this report.
CNBC’s Diana Olick digs into today’s housing data. With CNBC’s Melissa Lee and the Fast Money traders, Tim Seymour, Karen Finerman, Dan Nathan and Guy Adami.
David Solomon, chief executive officer of Goldman Sachs Group Inc., during a Bloomberg Television at the Goldman Sachs Financial Services Conference in New York, US, on Tuesday, Dec. 6, 2022.
Michael Nagle | Bloomberg | Getty Images
Goldman Sachs is scheduled to report fourth-quarter earnings before the opening bell Tuesday.
Here’s what Wall Street expects:
related investing news
Earnings: $5.48 per share, 49% lower than a year earlier, according to Refinitiv
Revenue: $10.83 billion, 14% lower than a year earlier.
Trading Revenue: Fixed Income $2.31 billion, Equities $2.14 billion
Investing Banking: $1.75 billion
How long will the investment banking drought last?
That’s one of the top questions analysts will have for Goldman CEO David Solomon.
While the fourth quarter was an ugly one for bankers — Wall Street rivals JPMorgan Chase and Citigroup each posted declines in investment banking revenue of nearly 60% last week — analysts question the odds of a rebound sometime later this year.
They’ll also want to hear Solomon’s views on headcount and expenses after the bank laid off up to 3,200 employees last week, as well as details about Goldman’s consumer operations as it scales back ambitions there.
Goldman shares have climbed 8.9% this year going into Tuesday’s trading, compared with a 6.7% advance for the KBW Bank Index.
Last week, JPMorgan Chase and Bank of America topped profit expectations on surging net interest income, while Wells Fargo and Citigroup posted mixed results. Morgan Stanley is also scheduled to release results Tuesday.
This story is developing. Please check back for updates.
Bank of America CEO Brian Moynihan said Friday that the bank is preparing for a potential recession in 2023, including a scenario where unemployment rises rapidly.
“Our baseline scenario contemplates a mild recession. … But we also add to that a downside scenario, and what this results in is 95% of our reserve methodology is weighted toward a recessionary environment in 2023,” Moynihan said on a call with investors.
That pessimistic case, which is more negative than it was last quarter, calls for unemployment to rise to 5.5% early this year and remain at 5% or above through the end of 2024, Moynihan said.
While the bank said net credit charge-offs are still below pre-Covid pandemic levels, outstanding balances on credit cards are up 14% year over year, and Moynihan said delinquencies are rising from their unusually low pandemic levels.
Big banks and the markets erase early losses as investors digest earnings. With CNBC’s Melissa Lee and the Fast Money traders, Tim Seymour, Bonawyn Eison, Steve Grasso and Jeff Mills.
Market Movers rounds up the best trade ideas from investors and analysts throughout the day. The pros discussed JPMorgan Chase , as its stock rose 2.5% after the bank posted fourth-quarter earnings and revenue that beat expectations . They compared those results to quarterly reports from Wells Fargo , whose stock popped more than 3%. Wells Fargo missed the Street’s expectations on revenue in the latest quarter. The experts also talked about UnitedHealth after the insurance company reported better-than-expected results for the latest quarter. Other stocks mentioned included Disney and Delta Air Lines . Disney and Wells Fargo are stocks held in Jim Cramer ‘s Charitable Trust portfolio.
JPMorgan Chase, Bank of America, Citigroup and asset management giant BlackRock posted results that topped Wall Street’s forecasts Friday, but investors were nonetheless a little disappointed at first.
Trading was choppy, with most bank stocks falling at the open before rebounding. Shares of JPMorgan Chase
(JPM) were up about 2.5% in late afternoon trading while BofA
(BAC) was up 2%. Wells Fargo
(WFC), which reported earnings that missed Wall Street’s targets, reversed earlier losses and was up 3%. Citi
(C) was up 2% while BlackRock
(BLK) was flat.
“The earnings were solid, but the market is concerned with recession fears,” said John Curran, managing director and head of North American bank coverage at MUFG.
Investors might have been concerned by the downbeat tone of the big banks. Executives are clearly still worried about inflation and the threat of a recession this year following several big interest rate hikes by the Federal Reserve.
JPMorgan Chase CEO Jamie Dimon said in the bank’s earnings statement that although the economy is still strong and that consumers and businesses are spending and healthy, “we still do not know the ultimate effect of the headwinds coming from geopolitical tensions including the war in Ukraine, the vulnerable state of energy and food supplies, persistent inflation that is eroding purchasing power and has pushed interest rates higher.”
The bank added in the earnings release that it now expects a “mild recession” as a base economic case. CFO Jeremy Barnum added during a conference call with reporters that in addition to the slowdown that has already started in its home lending unit, it is starting to see “headwinds” in auto lending.
Meanwhile, BofA CEO Brian Moynihan noted that this is “an increasingly slowing economic environment” and Wells Fargo CEO Charlie Scharf said “we are carefully watching the impact of higher rates on our customers.” Wells Fargo recently announced plans to pull back on its massive mortgage business.
Banks are clearly worried about a looming recession, and Wall Street has taken notice.
Moody’s Investors Service analyst Peter Nerby noted in a report that “credit provisions are rising” at JPMorgan Chase and that Citi “built capital and reserves in anticipation of a slowdown in core markets.”
The Fed’s rate hikes aren’t helping either.
“Higher than expected interest rates pose a significant risk to the outlook for credit quality, loan growth and net interest margins,” said David Wagner, a portfolio manager at Aptus Capital Advisors, in an email.
Concerns about the economy were one reason why stocks plunged in 2022, suffering their worst year since 2008. As a result of the Wall Street slump, there was a major slowdown in merger activity and initial public offerings.
That hurt the investment banking businesses for the top banks. JPMorgan Chase and Citi each said that advisory fees plummeted nearly 60% in the quarter.
Goldman Sachs
(GS) and Morgan Stanley
(MS) will give more color about the health of Wall Street next Tuesday when they both report their fourth quarter results.
Goldman Sachs, which has aggressively built up a consumer banking unit over the past few years, has struggled to make money in that division. Goldman Sachs disclosed in a regulatory filing Friday that it has lost more than $3 billion in its consumer business since 2020.
There were some signs of optimism though. BlackRock, which owns the massive iShares family of exchange-traded funds, reported a rebound in assets under management from the third quarter to the fourth quarter as stocks soared in October and November.
“The current environment offers incredible opportunities for long-term investors,” said BlackRock CEO Larry Fink in the earnings release.
Bank of America reported fourth-quarter results on Friday that showed higher interest rates helped the Wall Street giant make up for a sharp slowdown in investment banking.
Here are the key metrics compared with what Wall Street expected:
Earnings: 85 cents per share versus 77 cents a share, according to Refinitiv
Revenue: $24.66 billion versus $24.33 billion, according to Refinitiv
The results were boosted by sizeable gains in interest income thanks to higher rates and loan growth in the fourth quarter. The bank reported $14.7 billion of net interest income, up 29% year over year but slightly below Wall Street expectations of $14.8 billion, according to StreetAccount.
That gain helped offset a decline in investment banking fees, which fell more than 50% to $1.1 billion. That result was largely in line with expectations, according to StreetAccount.
However, the bank did guide for net interest income to decline sequentially in the first quarter of 2023.
Shares of Bank of America rose 2.2% on Friday.
“The themes in the quarter have been consistent all year as organic growth and rates helped deliver the value of our deposit franchise. That coupled with expense management helped drive operating leverage for the sixth consecutive quarter,” CEO Brian Moynihan said in a statement.
Bank of America was supposed to be one of the main beneficiaries of the Federal Reserve’s rate-boosting campaign. But bank stocks got hammered last year amid concerns a recession was on the way.
The bank implemented a $1.1 billion provision for credit losses, up $1.6 billion compared with the same quarter in 2021, but said net charge-offs remain below pre-pandemic levels.
Notably, that was below the $2.3 billion provision for credit losses from rival JPMorgan Chase, but Moynihan said Bank of America is similarly expecting a mild recession.
“Our baseline scenario contemplates a mild recession. … But we also add to that a downside scenario, and what this results in is 95% of our reserve methodology is weighted toward a recessionary environment in 2023,” Moynihan said on a call with investors.
On the consumer banking front, Bank of America reported that balances were roughly flat, while credit card and debit spending rose 5% year over year. Average outstanding balance on credit cards climbed by 14%.
Average loans and leases for the whole bank rose 10% year over year, while the same metric for consumer banking rose 6%.
The global wealth and investment management business saw total revenue increase marginally even as average deposits declined. Net income for the segment was down 2% year over year.
Revenue from fixed income, currency and commodity trading was another bright spot, rising 37% year over year.
Prior to the report, Bank of America’s stock was up 4% in the first few days of 2023.
Jamie Dimon, CEO of JPMorgan Chase, testifies during the Senate Banking, Housing, and Urban Affairs Committee hearing titled Annual Oversight of the Nations Largest Banks, in Hart Building on Thursday, September 22, 2022.
Tom Williams | CQ-Roll Call, Inc. | Getty Images
JPMorgan Chase is scheduled to report fourth-quarter earnings before the opening bell Friday.
Here’s what Wall Street expects:
related investing news
Earnings: $3.07 per share, 7.9% lower than a year earlier, according to Refinitiv.
Revenue: $34.3 billion, 13% higher than a year earlier.
Provision for credit losses $1.96 billion, according to StreetAccount
Trading revenue: fixed income $3.76 billion, equities $1.92 billion
Investment banking revenue: $1.57 billion
JPMorgan, the biggest U.S. bank by assets, will be closely watched for clues on how the industry is navigating an economy at a crossroads.
Analysts are expecting a mixed bag of conflicting trends from banks. Higher rates will help lenders earn more interest income, but some of that boost will be offset by larger provisions for expected loan losses as the economy slows.
Wall Street won’t likely come to the rescue. Investment banking revenue is expected to plunge 50% in the wake of frozen IPO markets and subdued deals, Barclays analyst Jason Goldberg said in a Jan. 11 note.
That will be partly offset by a 10% rise in trading revenue, thanks to a boost from fixed income operations, he wrote.
Of greater interest, perhaps, is what JPMorgan CEO Jamie Dimon says about the economy. The veteran CEO rattled markets last year when he said an economic “hurricane” caused by the Federal Reserve was headed for the U.S.
Shares of JPMorgan have climbed 4% this year, compared with the 6% rise of the KBW Bank Index.
It’s been a confusing time for investors in bank stocks. The industry got what it wanted last year — higher interest rates, courtesy of the Federal Reserve — but bank stocks still got hammered because of recession fears. This year, bank shares have climbed on hopes for an economic soft landing that would help them avoid a wave of profit-crushing loan defaults. The 24-company KBW Bank Index has climbed 5.3% so far, compared to a 24% decline in 2022. Analysts are expecting a mixed bag of conflicting trends when four of the largest U.S. banks report fourth-quarter results Friday. Higher rates will help companies earn more interest income, but some of that boost will be offset by larger provisions for expected loan losses as the economy slows. As a result, analysts are torn as to whether now is the time to invest in bank stocks, or whether it’s better to wait until getting an all-clear signal on the industry. For clues on the sector’s direction, here are four key metrics to watch: Net interest income Net interest income (NII), one of the main drivers of bank revenue, should continue to rise in the fourth quarter, JPMorgan analyst Vivek Juneja said in a Jan. 6 note. NII is expected to rise about 5% over the third quarter on average, thanks to higher rates and loan growth, according to the analyst. But the future path of this crucial yardstick is what most concerns investors. How much further the Fed raises rates and how long they are kept elevated, before a potential pivot, are all factors. Investors are concerned that NII growth will stall out later this year if loan growth subsides and funding costs rise thanks to competition for deposits. “Our continued cautious view … reflects ongoing macro risks and likely weakening bank fundamentals —including peaking net interest margins,” Deutsche Bank analyst Matt O’Connor said in Jan. 5 note. Reserves Thanks to recent changes in accounting rules, banks have to set aside reserves for loan losses when they anticipate a turn in the economy. The result is that even before borrowers default, banks begin to register the impact of an impending recession. Morgan Stanley analyst Betsy Graseck thinks that loan loss provisions will be higher than expected for every large bank she covers, according to a Jan. 6 note. That’s in part informed by her tracking of filings from the credit card industry, which show that late payments are rising at the fastest pace since the 2008 financial crisis, she wrote. “With most U.S. economists forecasting either a recession or significant slowdown this year, banks will likely incorporate a more severe economic outlook” in their scenario planning, Graseck wrote. Wall Street Investment banking fees will end a tough year on a low note compared to a year ago, when the market was booming. Revenue is expected to plunge 50% in the wake of frozen IPO markets and subdued deals activity, Barclays analyst Jason Goldberg wrote in a Jan. 11 note. That will be partly offset by a 10% rise in trading revenue, thanks to a boost from fixed income operations, Goldberg wrote. Finally, lower average levels in the stock and bond markets will pressure asset management fees, he added. The outlook Investors tend to discount fourth-quarter results in favor of what managements say about their outlooks for the coming year. For that reason, conference calls with bank executives will be crucial for investors to discern changes in forward guidance on metrics including reserves, net interest income, share buybacks and expectations for investment banking, trading and lending in 2023. “While 4Q earnings should be fine, we remain cautious about commentary regarding the outlook and overall earnings trends,” JPMorgan’s Juneja wrote in his note. “Uncertainty about a recession and whether it is mild or harsh will likely pressure markets medium term.” Of special interest is guidance on expenses, given concern that wage inflation will force banks to contend with rising costs at the same time that revenue could fall. “We expect above-consensus expense guides will likely weigh on bank stocks during 4Q22 earnings as managements communicate their 2023 budget plans,” Graseck said. — CNBC’s Michael Bloom contributed reporting
It’s only early January, but so far in 2023 the pendulum on Wall Street has swung (to paraphrase Billy Joel) from sadness to euphoria.
Stocks are off to a solid start following last year’s dismal performance. Even though the Dow fell more than 110 points, or 0.3%, to close Monday’s session it is still up more than 1% this year. The S&P 500 ended Monday down 0.1% while the Nasdaq gained 0.6%. But those two indexes are each up about 1.5% since the end of 2022.
Even the CNN Business Fear and Greed Index, which looks at seven indicators of market sentiment, is now inching closer to Greed territory — after languishing in Fear mode for the better part of the past few weeks.
But why is there such optimism on Wall Street all of a sudden? The headlines still aren’t necessarily that great.
Yes, the market cheered Friday’s jobs report because it showed slowing wage growth that could lead to a further reduction in inflation pressures and smaller rate hikes from the Federal Reserve. But it also showed the pace of job growth is slowing — and that could be a precursor to an eventual recession.
Meanwhile the Institute for Supply Management’s latest data showed the services sector, a big engine of the US economy, contracted last month. And several high-profile companies in the tech, consumer, financial services (and yes, media) industries have announced big layoffs or unveiled plans to hand out pink slips. Retailers such as Macy’s
(M) and Lululemon
(LULU) are warning about sales and profits.
Add all this up and it doesn’t sound like cause for celebration.
But Wall Street is a funny place: Good news is often viewed as a bad sign, and vice versa.
Sure, it would be a big plus if the Fed is able to pull off a proverbial soft landing, slowing the economy without leading to a full-blown recession and/or significant decline in corporate profits. But that’s a big if.
There’s another possibility that bulls are clinging to as well: that there will be a recession, but a mild one that also just so happens to be one of the most widely expected and telegraphed downturns in recent memory. This isn’t a proverbial black swan. There is no “Lehman moment” to catch everyone off guard.
As long as the Fed can get inflation under control, investors might not be too concerned by a recession anyway. At least, that’s the ‘glass is half full’ argument.
“Any recession will be perceived by investors to be less problematic if inflation is judged to be sufficiently contained, and the Fed is prepared to mount an appropriate monetary response,” said Robert Teeter, managing director of Silvercrest Asset Management, in a report.
Teeter added that falling inflation levels should boost stocks this year “even as earnings remain lackluster.”
But others see a problem with that argument.
“Our concern is that most [investors]are assuming ‘everyone is bearish’ and, therefore, the price downside in a recession is also likely to be mild,” said strategists at Morgan Stanley in a report.
Instead, the Morgan Stanley strategists think investors might be surprised by just how much lower stocks go if there is a recession. They noted that the market may not be pricing in “much weaker earnings.”
Investors may also be underestimating how far the Fed is willing to go with rate hikes in order to make sure inflation finally starts to fall.
“Many investors have been reassured by the strength of the US labor market. Yet…the Federal Reserve is determined to tighten monetary policy until that strength is eradicated — the recession clock is ticking,” said Seema Shah, chief global strategist at Principal Asset Management, in a report.
And Shah does not believe the recession will be mild. She wrote after Friday’s jobs report that “a hard landing looks to be the most likely outcome this year.”
The economy is expected to have added 200,000 jobs in December, less than November, but still strong enough to keep the Federal Reserve aggressively tightening policy to fight inflation.
Economists surveyed by Dow Jones also expect that the unemployment rate remained at 3.7% in December, while average hourly wage growth slowed to 0.4% from 0.6% in November. There were 263,000 jobs added in November.
The employment report is scheduled to be released Friday at 8:30 a.m. ET, and it is the last major monthly jobs data before the Fed meets Jan. 31 and Feb. 1.
The data is important since the Fed has been trying to slow the hot labor market in its fight against inflation. The central bank has raised interest rates seven times in this tightening cycle, and economists say it could hike by another half-percentage point in February, but traders in the futures market are betting on just a quarter-point hike.
“I still think we’re in for a solid number on Friday. I don’t think things have slowed all that much,” said Michael Gapen, chief U.S. economist at Bank of America.
Gapen expects 215,000 jobs were added last month. “That’s twice as much job growth as they want.” December’s report could still show some gains from seasonal hiring.
Gapen expects the monthly number could start to turn negative in the first half of the year, and then continue to be negative for awhile.
“Right now the underlying economy is where we’re looking for evidence to suggest whether the slowdown has broadened beyond housing and nonresidential construction investment,” he said. “The next likely place should be the goods side of the economy.”
The Fed is willing to have the job market weaken because officials see worse damage for the economy if they let inflation remain high, Gapen said. He is looking at construction as one area that could give up jobs, as the real estate slowdown ripples across the economy.
“We have a large number of homes under construction. … We’ll look for mortgage service lenders and realtors … people who are framers and foundation layoffs. That’s probably where you’ll see layoffs first in construction,” he said.
Aneta Markowska, chief financial economist at Jefferies, expects 175,000 jobs were added, but she is most concerned about the continued pressure on wages. She agrees with the consensus that wages grew in December by 0.4%, or 5% year over year, but says that number could jump to as high as 0.7% on a monthly basis in January, as companies implement raises.
Economists worry that wage inflation, should it begin to spiral, is a type of inflation that is more difficult to eradicate. The strength in the labor economy has been surprising economists for months. Job openings in November, for instance, were reported at nearly 10.5 million, more than expected, when the Job Openings and Turnover Layoff Survey was released Wednesday.
“I think what the JOLTs data told us is that actually there is a slowdown in hiring. It’s not because demand for labor is declining rapidly,” said Markowska. “It’s just the supply constraints are starting to bite. You’re seeing the quits rate go up again. Growth hires are still solid. … We’re potentially running into more binding constraints in the labor market, and if that’s the case, we’re in for more upside in wages.”
Diane Swonk, chief economist at KPMG, said an area that has shown an increase in hiring is new companies.
“Much of what we’re seeing is being driven on the demand side, not just by employers, but by new business formation, which they’re all of a sudden having to compete with,” she said. “It’s a very different situation than we’ve seen in the past.”
The Fed has raised interest rates seven times since last March, and the fed funds rate is now at 4.25% to 4.5%. Both Gapen and Markowska said the strength in labor warrants the central bank raising rates by another half-percentage point on Feb. 1, and then a quarter point in March. Many investors, however, expect just a quarter-point hike in February and then another quarter point after that.
Mark Zandi, chief economist at Moody’s Analytics, said the Fed is trying to encourage investors to expect higher rates for longer. That was evident in the minutes from its December meeting, released Wednesday.
“I think they are trying to guide markets from thinking rates are going to come down quickly this year,” he said. “If you look at market expectations, the fed funds rate comes up to 5% shortly and then comes back down quickly in the back end of the year. The message in the minutes is rates are going to be higher for longer. Who knows at the end of the day if they are going to keep rates that high for long, but that’s the message they wanted to send.”
Zandi expects the economy added 225,000 jobs in December.
“The job market is slowing steadily, but surely. It’s not enough. The Fed, I think, would love to see job gains south of 100,000, closer to zero, to get unemployment moving north and wages moving south. These numbers suggest we’ll quickly be moving in that direction,” he said. “I think we’ll be at 100,000 in the spring and there will be months at zero on the spring or summer.”
Because of its potential impact on the Fed, the jobs report could move the markets.
“I’d look at wages first and foremost. If jobs comes in at 250,000 or 300,000, I don’t think the market reacts too much,” said Michael Schumacher, head of macro strategy at Wells Fargo. “If the wage side of it comes in at 0.5, or 0.6, that’s pretty disruptive. 0.3 is a nonevent. The market needs a 0.2 to move a lot, and then the narrative kicks in that the Fed is almost done.”
Many on Wall Street cheered last fall when the midterm elections ushered in a return of divided government in Washington.
The old mantra is that gridlock is good because it means neither political party can mess things up.
But the historic dysfunction playing out in Congress this week is a reminder that you should be careful what you wish for. While gridlock might be good for markets and the economy, complete paralysis is bad because, every so often, government needs to get stuff done.
House Republicans’ inability to pick a speaker on the first ballot (or second or third) for the first time in a century raises an ominous question: If lawmakers can’t pick a speaker, how can they tackle truly thorny issues like raising the debt ceiling or responding to a potential recession?
“We’re watching a slow-moving trainwreck collide with a dumpster fire,” Isaac Boltansky, director of policy research at BTIG, told CNN in a phone interview. “This is a clear indication we will have dysfunction for the entirety of this Congress, which heightens the risk around must-act deadlines such as the debt ceiling.”
One New York Stock Exchange trader, a self-described conservative, told CNN on Tuesday the situation in the House is “disturbing” because it suggests lawmakers will struggle to get even more important things done.
“This is a joke. The party can’t get its [stuff] together. It’s a disgrace,” said the trader, who requested anonymity to discuss the situation candidly.
Even if Republicans eventually coalesce around Rep. Kevin McCarthy or a consensus candidate for speaker, the past few days have made plain to investors, economists and the public just how ungovernable the GOP majority in the House appears to be.
“This is not gridlock so much as a rudderless ship without a captain,” Chris Krueger of Cowen Washington Research Group wrote in a note titled, “Burning down the House: Speaker vote opening act for 2 years of tail risk.”
Krueger said the 4,000-page spending bill passed by Congress last month removed “a lot of the sharp objects” that could harm the economy.
But lawmakers did not agree to tackle the debt ceiling, the borrowing limit that must be raised to avoid a calamitous US debt default.
It’s not hard to imagine the ungovernable GOP majority clashing with Democrats and the White House this summer and fall over the debt ceiling — with the entire world economy hanging in the balance.
Even before the House speaker stalemate, Goldman Sachs warned late last year that 2023 could bring the scariest debt ceiling fight since that infamous 2011 episode that cost America its perfect AAA credit score.
In the past, brinksmanship over the debt ceiling eventually gave way to a compromise, though often not until significant pressure was applied by business leaders, financial markets — or both.
It’s not clear how a debate over the debt ceiling will play out this time though, given the narrowly divided Congress and skepticism from Republicans about corporate America.
“Our concern is that an increasingly populist GOP is less tied to big business influence, while a narrow majority amplifies their influence,” Benjamin Salisbury, director of research at Height Capital Markets, wrote in a note to clients on Wednesday.
Of course, the “House of Cards”-style drama playing out in Congress is not the most pressing issue facing the economy and investors right now.
The biggest questions concern whether the US economy is about to stumble into a recession (or a “slowcession,” if you ask Moody’s) and how long the Federal Reserve will keep up its fight against inflation.
Later this week, on Friday, investors will be laser-focused not on McCarthy’s fate but on the monthly jobs report and what it says about efforts to cool down the labor market.
Andrew Frankel, co-president of Stuart Frankel, dismissed the House speaker race as a “big, fat nothing-burger” for the market and said it was “just noise.”
“It’s all about the Fed,” Frankel said.
And yet the stalemate in the House underscores how hard it will be for lawmakers to aggressively respond to a potential recession or another crisis in the next two years.
Greenspan, senior economic adviser at Advisors Capital Management, said in a discussion posted online that inflation will not cool enough to avoid “at least a mild recession” induced by the Fed.
“We may have a brief period of calm on the inflation front, but I think it will be too little too late,” Greenspan said.
If there is a recession, the chaos in Washington suggests the economy may not be able to count on a timely rescue from Congress this time around.
Disgraced financier Bernie Madoff will go down in infamy for orchestrating the largest Ponzi Scheme in history, conning investors out of $65 billion over several decades.
TIMOTHY A. CLARY/AFP via Getty Images
Madoff pleaded guilty to 11 felony charges including securities fraud and money laundering in 2009. He was sentenced to 150 years in prison and died 12 years into his sentence at the age of 82 in April 2021.
“He stole from the rich. He stole from the poor. He stole from the in-between. He had no values,” said former investor Tom Fitzmaurice at Madoff’s sentencing, per AP News. “He cheated his victims out of their money so he and his wife … could live a life of luxury beyond belief.”
Netflix is set to revisit the con that rocked the 2008 financial crisis and unpack how Madoff used his status as a respected money manager to perpetrate the ruse in a new four-part docuseries “Madoff: The Monster of Wall Street” hitting the streamer on January 4.
The series chronicles Madoff’s rise to power and the poor oversight that allowed the scam to flourish. So far, only $14 billion in recovered funds has been distributed to victims so far, per ABC News, and the fallout of Madoff’s fraud is still felt today.
Here’s everything you need to know about Madoff and his infamous Ponzi scheme.
Who Was Bernie Madoff?
Before Bernie Madoff became a Wall Street powerhouse, the New York native came from humble beginnings. After growing up in Queens and attending Hofstra University, he started Bernard L. Madoff Investment Securities with just a few thousand dollars.
The firm traded penny stocks in the 1960s until Madoff convinced family and friends to invest with him, using an investing strategy called a split-strike conversion. He promised big returns to his clients and he delivered, however, he was keeping all the funds in a single Chase bank account. After decades in business, he became one of Wall Street’s biggest and most respected players.
Madoff was also instrumental in launching the Nasdaq, the first electronic stock exchange, in the 1970s and he even worked with the Securities and Exchange Commission (SEC) on the project, per The Guardian.
He later became chair of the Nasdaq in the 1990s. That, coupled with big returns on investments gave him the credibility investors needed to trust him with their assets. Some of his most notable investors included Steven Spielberg, Kevin Bacon, and Holocaust survivor Elie Wiesel.
What Did Bernie Madoff Do?
Bernie Madoff’s legitimate business endeavors and his status distracted from a $65 billion Ponzi Scheme that was hidden behind the scenes. A Ponzi Scheme is when investors are told their funds would be used for investment opportunities but were actually given as compensation to earlier investors, in other words, Madoff was robbing Peter to pay Paul.
The dark side of his business was hidden on an entirely different floor of his office that had very limited access, even Madoff’s sons who worked at the company were allegedly out of the loop.
To keep his ruse going, he printed false monthly statements that showed steady double-digit returns.
Despite several alarms made to the SEC about the too-good-to-be-true nature of Madoff’s business, his power in the industry and the billions of dollars involved allowed the scheme to prosper for years.
What Happened to Bernie Madoff?
The woes of the 2008 financial crisis left Madoff unable to continue his Ponzi Scheme with investors who were scrambling to gather back their assets. He knew the game was over when he only had $300 million left of investor money in his account, so he came clean to his sons, telling them the family business was “all just one big lie,” per AP News.
His sons, Andrew and Mark Madoff, then turned him in to the FBI, and Madoff was arrested the next day. He pleaded guilty to several counts of fraud in March 2009 and was released on a $10 million bond. Months later he was sentenced to 150 years in prison.
After being slapped with the maximum possible sentence, U.S. District Judge Denny Chin said: “Here, the message must be sent that Mr. Madoff’s crimes were extraordinarily evil and that this kind of irresponsible manipulation of the system is not merely a bloodless financial crime that takes place just on paper, but it is instead … one that takes a staggering human toll.”
Twelve years into Madoff’s sentence, he died behind bars due to “natural causes related to his failing health,” according to the outlet. He was 82 years old.
“No one sees this as a great loss,” said Jerry Reisman at the time, an attorney who represented a number of Madoff’s victims. “No one is going to mourn Bernie Madoff. They are happy they have survived him.”
Madoff’s son Mark died by suicide on the second anniversary of his father’s arrest in 2010, and his other son Andrew died from cancer in 2014. His wife, Ruth, is still alive today.
What Was Bernie Madoff’s Net Worth?
Before Madoff’s empire came crashing down, ABC News reported that Madoff and his wife, Ruth, had a total net worth of $823 million by the end of 2008.
According to the outlet, the assets consisted of $22 million worth of homes in Manhattan, The Hamptons, Palm Beach, and France, plus $17 million in cash, $45 million in securities, and his investment business valued at $700 million.
After Madoff was sentenced in 2009, a judge ordered him to forfeit all of his property, real estate, and investments, in addition to $80 million of Ruth’s personal assets, leaving her with $2.5 million, according to AP News.
Wells Fargo analyst Mike Mayo named Bank of America his top pick for 2023 on expectations for “near best-in-class” growth in net interest income, profit margins and earnings. The stock should merit a higher multiple this year and can climb 55% from its price on Tuesday, Mayo wrote in a note published that day. The country’s second biggest bank by assets exemplifies Mayo’s bull thesis for banks, which is that they will weather the impending economic downturn better than expected because the industry has spent the past decade reducing risk across businesses. “As much as any bank, it is ‘showtime’ for BAC if, as we expect, the onslaught of higher rates leads to greater NII growth, more business volume demonstrates model scalability, and slower economic growth further proves BAC’s resiliency after years of de-risking,” Mayo wrote. The veteran bank analyst’s call clashes with several of his peers, who published bearish notes last month that cited expectations for a U.S. recession in 2023. Higher reserves for bad loans, rising expenses and funding costs for deposits, and moribund results in wealth management and investment banking were predicted by the pessimistic analysts. To be fair, Bank of America was also Mayo’s top pick at the start of 2022. After a strong start to the year, investors bailed on banks amid worries that an impending recession will lead to higher defaults. Shares of the Charlotte, North Carolina-based bank fell 26% last year, worse than the 15% decline of rival JPMorgan Chase and the 24% drop of the KBW Bank Index . “Our view is that this stemmed from recency bias from the Global Financial Crisis and ignores what amounts to perhaps the greatest amount of de-risking of any large bank, esp. based on the Fed stress test,” Mayo wrote of last year’s stock decline. Mayo’s other top picks are U.S. Bancorp and PNC Financial , both of which should beat consensus earnings by at least 6% over the next two years, Mayo wrote. His favored banks should be able to address investors’ concerns better than competitors by holding onto gains in net interest income, exhibit good expense control and “superior” credit quality, he wrote. — CNBC’s Michael Bloom contributed to this report.
There’s “less compelling” upside for Goldman Sachs in 2023, according to Wolfe Research. Analyst Steven Chubak downgraded shares to peer perform from outperform, saying other bank stocks such as Wells Fargo and Bank of New York Mellon are more attractive after the recent gains at Goldman Sachs. “We have been strong proponents of GS’ strategy over the last few years, and GS has been one of our Top Picks since our meeting with then-CFO Scherr in March 2019. The stock has done very well in that time (+72%), outperforming the S & P (+36%) and BKX (+8%),” Chubak wrote in a Wednesday note. “However, as we head in 2023, we see less compelling upside in shares, prompting us to move to the sidelines,” Chubak wrote. Shares of Goldman Sachs declined 10% in 2022, outperforming the S & P 500, which was down about 19% in the same period. The investment bank also beat Wells Fargo, which lost nearly 12%, and Bank of New York Mellon, which was down 19%. Even so, the mid-point of the firm’s future value range of $388 represents just 13% upside for shares, according to the analyst. Shares of Goldman Sachs rose slightly in Wednesday premarket trading. Other challenges hang over the banking stock, including a series of proposed international banking reforms called Basel 4 from Switzerland. Wolfe Research also expects downside to 2023 and 2024 consensus revenue estimates. —CNBC’s Michael Bloom contributed to this report.
One kilo gold bars are pictured at the plant of gold and silver refiner and bar manufacturer Argor-Heraeus in Mendrisio, Switzerland, July 13, 2022.
Denis Balibouse | Reuters
LONDON — The price of gold notched a six-month high early on Tuesday, and analysts believe the rally has further to go in 2023.
Spot gold peaked just below $1,850 per troy ounce in the early hours, before easing off to trade around $1,834 per ounce by late-morning in Europe. U.S. gold futures were up 0.8% at $1,840.50.
related investing news
Gold prices have been on a general incline since the beginning of November as market turbulence, rising recession expectations, and more gold purchases from central banks underpinned demand.
“In general, we are looking for a price friendly 2023 supported by recession and stock market valuation risks — an eventual peak in central bank rates combined with the prospect of a weaker dollar and inflation not returning to the expected sub-3% level by year-end — all adding support,” said Ole Hansen, head of commodity strategy at Saxo Bank.
“In addition, the de-dollarization seen by several central banks last year when a record amount of gold was bought look set to continue, thereby providing a soft floor under the market.”
Looking ahead, Hansen suggested the key events for gold prices would be Wednesday’s minutes from the latest U.S. Federal Reserve meeting and Friday’s U.S. jobs report.
“Above $1842, the 50% [mark] of the 2022 correction, gold will be looking for resistance at $1850 and $1878 next,” Hansen added.
New all-time high in 2023?
Much of the 2023 outlook for global markets hinges on the trajectory of monetary policy as central banks ease off the aggressive interest rate hikes of the past year amid slowing economic growth and possible recessions.
Economists are divided as to whether this will culminate in rate cuts by the end of the year, however, as inflation is expected to remain well above the target range in most major economies.
A full dovish pivot by central banks this year would likely have major implications for gold prices, according to strategists.
Eric Strand, manager of the AuAg ESG Gold Mining ETF, said last month that 2023 would yield a new all-time high for gold and the start of a “new secular bull market,” with the price exceeding $2,100 per ounce.
“Central banks as a group have continued, since the great financial crisis, to add more and more gold to their reserves, with a new record set for [the third quarter of] 2022,” Strand said.
“It is our opinion that central banks will pivot on their rate hikes and become dovish during 2023, which will ignite an explosive move for gold for years to come. We therefore believe gold will end 2023 at least 20% higher, and we also see miners outperforming gold with a factor of two.”
The bullion bullishness was echoed toward the end of last year by Juerg Kiener, managing director and chief investment officer at Swiss Asia Capital, who told CNBC last month that the current market conditions mirror those of 2001 and 2008.
“In 2001, the market didn’t just move 20 or 30%, it moved a lot, the same in 2008 when we had actually a smaller sell-off in the market and the stimulus coming back in, and gold went from $600 to $1,800 in no time, so I think we have a very good chance that we see a major move,” Kiener told CNBC’s “Street Signs Asia” in late December.
“It is not going to be just 10 or 20%, I think I’m looking at a move which will really make new highs.”
The outlook for Ally Financial is more uncertain in 2023, according to Barclays. Analyst Jason Goldberg downgraded shares of Ally to equal weight from overweight, saying the bank is more vulnerable to a downshift in the economy. “This year is likely to witness the end of the Fed tightening cycle and loan loss normalization,” Goldberg wrote in a Tuesday note. “As such, we are becoming less constructive on those with outsized asset sensitivity and areas we believe loan losses will adjust the fastest – namely, lower-end consumer (most impacted by much reduced stimulus, elevated inflation, and higher interest rates) and commercial real estate (uncertainties in office, retail, health care segments),” Goldberg added. Banks are starting the new year with several advantages and disadvantages. While they are generally well positioned to weather economic shocks, they’re also dealing with an uncertain macro that could mean higher credit losses and slowing loan growth. Ally shares had their worst year on record in 2022, dropping 48.7%. The analyst lowered his price target to $33, down from $40, which implies nearly 35% upside from Friday’s closing price. “While ALLY should still be able to achieve a core ROTCE in the mid-double digits range over time, results in the near-term will likely be pressured due to the impacts of higher rates partially offset by continued loan growth,” Goldberg wrote. In addition to Ally, the analyst downgraded shares of Capital One Financial to equal weight from overweight, saying that the two stocks are the “most exposed banks we cover to the lower-end consumer.” —CNBC’s Michael Bloom contributed to this report.
Volodymyr Zelenskiy, Ukraine’s president, meets with US President Joe Biden in the Oval Office of the White House in Washington, DC, US, on Wednesday, Dec. 21, 2022.
Oliver Contreras | Bloomberg | Getty Images
Ukrainian President Volodymyr Zelenskyy and BlackRock CEO Larry Fink agreed to coordinate investment in rebuilding Ukraine, Kyiv announced on Wednesday following a meeting between the two men.
A readout from the Ukrainian president’s official website said Zelenskyy and Fink had “agreed to focus in the near term on coordinating the efforts of all potential investors and participants in the reconstruction of our country, channelling investment into the most relevant and impactful sectors of the Ukrainian economy.”
BlackRock Financial Markets Advisory and the Ukrainian Ministry of Economy signed a memorandum of understanding in November, after Fink and Zelenskyy met in September to discuss driving public and private investments into Ukraine to rebuild the country after Russia’s highly destructive invasion.
BlackRock, one of the world’s largest investment managers, has been providing “advisory support for designing an investment framework, with a goal of creating opportunities for both public and private investors to participate in the future reconstruction and recovery of the Ukrainian economy,” the company said in a statement last month.
A spokesperson for BlackRock was not immediately available for comment.
Market Movers rounds up the best trade ideas from investors and analysts throughout the day. The pros discussed Tesla , which fell more than 11% Tuesday and is on pace for its biggest annual loss ever, down 69% year-to-date . The experts also talked about IBM . The stock is one of only two U.S. big tech names, valued at $50 billion or more, in the green for 2022. Other stocks mentioned included Apple and Amazon . Both of these stocks are in Jim Cramer ‘s Charitable Trust portfolio.
