FINANCIALS

Banks Kick Off Earnings Season With Solid But Underwhelming Results

Last Friday, three major US banks handed investors their report cards. And if the market is any indicator, these banks will soon be spending a lot less time outside and more time hitting the books. JPMorgan ($JPM), Wells Fargo ($WFC), and Citi ($C) exceeded analyst expectations despite the likelihood of interest rates remaining higher for longer. But for banks, this means paying more interest on deposits — potentially keeping their profits flat in 2024. This concern may have spooked investors, sending $JPM down 6% on Friday, its largest single-day decline since 2020. But the bright spots were a rebound in banking fees and a surge in spending.

• At JPMorgan and Citigroup, investment banking fees rose 21% and 32%, respectively — signaling a recovery in corporate dealmaking.

• Credit card spending across the three banks eclipsed $471B — with Wells Fargo leading the pack with an 8% increase in spending from the year-ago quarter.

What’s the earnings outlook?

With stocks near all-time highs, companies have a lot at stake during earnings season. Falling short could jeopardize those gains, but fortunately, many companies had set the bar low. According to FactSet, 71% of the 112 S&P 500 companies that issued earnings guidance last quarter had a negative outlook.

• FactSet predicts that revenue and earnings growth will rise by 3.5% and 3.2%, respectively, in the first quarter — well below the 4.4% and 5.7% forecast from the previous quarter.

• This would mark the S&P 500’s third consecutive quarter of earnings growth — and its 14th consecutive quarter of revenue growth.

One more quarter to juice? Manish Kabra, Societe Generale’s Head of US Equity Strategy, anticipates “at least one more quarter” of strength, stating, “It’s way too early to apply the brakes on the US stock rally” (BBG). Cayla Seder from State Street also expects a strong earnings season on the back of solid economic growth in the first quarter. But with valuations running high and investors still waiting for tech companies to deliver on AI, any weaknesses could push markets lower.

Read: US Stocks Have Never Been Better — But Analysts Are Starting To Worry.

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LARGECAP RECAP

🤖 Cathie Wood loads up on AI companies in her venture fund

It’s been a minute since we talked about the infamous Cathie Wood. She’s back in the spotlight, but this time, it’s not about her innovation fund blowing up after a tremendous COVID rally. Instead, she’s making waves with her publicly-traded ARK Venture Fund ($ARKVX), which counts over 80% of its holdings exposed to AI.

• Last Friday, ARK announced a 4% stake in OpenAI, making it the fund’s sixth-largest holding, alongside other AI brands like Anthropic, Figure AI, Replit, and X Corp (parent company of X.ai), among other up-and-comers.

• Interestingly, ~10% of the fund is allocated to Anthropic, backed by Amazon ($AMZN), which has developed the AI model Claude, a serious competitor to ChatGPT and Figure, an AI robotics company.

How do I invest? At its 2.75% management fee, the ARK Venture Fund is one of the pricier options out there. Over five years, this premium could eat up more than a tenth of investors’ capital. But for those ecstatic about the AI opportunity, ARK suggests the easiest way to invest in $ARKVX is through the SoFi app.

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Markets & Economy

Globe Life ($GL) stock crumbles after insurance fraud claims: Short-seller Fuzzy Panda Research claims the company’s fraud is “obvious,” citing policies written for deceased and fictional people. Globe Life calls the allegations “misleading.” [Read]

Magnificent Seven extend their dominance: These tech megacaps now comprise ~30% of the overall S&P 500, their highest combined weighting ever. While Tesla’s ($TSLA) tough year (-30%) has done them no favors, strong years from $NVDA (+81%), $META (+47%), and $AMZN (+24%) have more than made up for it. [Read]

FBI chief issues ominous warning: Bureau Director Christopher Wray is on heightened alert about the potential for a domestic attack similar to the Russian concert hall shooting last month — and fears attackers may draw “twisted inspiration” from the violence in the Middle East. [Read]

Business & Wealth

National apartment rates climb for first time in six months: NYC’s annual rent price growth was 25%, the highest nationwide. Despite increased supply, rents have remained relatively flat this year — but it’s not enough to offset the huge spikes of ‘21 and ‘22. [Read]

The top 15 stocks erasing wealth over the past decade: GE ($GE) takes the cake, wiping out $55B in shareholder value, followed by Biogen ($BIIB), Las Vegas Sands ($LVS), and Walgreens ($WBA). Reasons for these downfalls include failed acquisitions, an inability to adapt to changing markets and stalling innovation. [Read]

Ghost kitchens face a reckoning: These delivery-only restaurants thrived during the pandemic but now face setbacks as companies like Kroger ($KR) and Wendy’s ($WEN) scale back investments with the return to regular dining. [Read]

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DIGIT OF THE DAY

IMF Predicts Decades of Weak Growth Ahead; Forecasts 3.1% GDP Growth This Year

While the world may have dodged a recession and stagflation, its economic growth is not what it once was. The Financial Times reports that International Monetary Fund (IMF) Managing Director Kristalina Georgieva forecasts a “sluggish and disappointing” decade ahead — with global gross domestic product (GDP) slated to grow just over 3% annually. Factors such as higher interest rates, weaker global trade, and slower growth in emerging markets contribute to this slowdown.

• As interest rates climb, low-income nations are getting trapped under the weight of government debt, with the interest payments consuming 14% of emerging markets’ government revenues on average — double what it was 15 years ago.

• However, the “tepid twenties” won’t affect everybody — the US and some fast-growing countries like Indonesia and India are projected to sustain global growth thanks to a sharp decline in inflation and anticipated rate reductions.

What to watch: Georgieva has cautioned against rate cuts, citing the risk of “new inflation surprises” prompting tighter monetary policies. She underscores the fragile global economic landscape, marked by sluggish global activity, persistent high inflation, and mounting debt straining public finances. Additionally, geopolitical tensions and a record number of elections this year compound these challenges. She advocates for strong governance, enhanced female labor market participation, and improved access to capital as critical measures to boost productivity.

Read: Inflation continues to cool across the pond, shedding light on Europe's ongoing efforts to combat rising prices.